Lecture notes
Macroeconomic notes
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These notes fully cover all of the macroeconomic topics covered in A levels and more
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MACROECONOMICSFor people who think hwachong notes suck.
© Wong Yun Sheng Calvin [06S61/21], Page 1
, MACROECONOMICS
A comprehensive A-Level guide, or what you do when hwachong notes suck.
As written by Wong Yun Sheng Calvin [06S61/21]
Chapter 1: Things you simply have to mug.
Concepts of National Income
This is, in all honesty, pure memory work.
Gross Domestic Product (GDP) Gross National Product (GNP)
The total market value of all final goods and services newly produced
The total market value of all
during a specified period, usually one year, by productive factors
final goods and services newly
owned by residents of the country, irrespective of where the factors
produced within the
are located, before provision for capital consumption.
geographical boundaries of a
Definitions
country during a specified
GNP = GDP + Net Property Income from abroad (NPIA) = GDP +
period, usually one year, before
Property income from abroad – Property income paid abroad
provision for capital
consumption.
Property income paid abroad by foreign companies in country that
transfer profit and dividends out to foreign owners. Property income
I.e. all goods and services
from abroad from residents making foreign investments.
produced by capital invested
locally
GDP higher only if NPIA is positive. If negative, GNP higher.
Market Price: value of output at shop level; price purchasers have to pay for the G&S sold on the market
Factor Cost: what the factors of production received for the produced G&S cost
Market Price
Market price and factor cost different due to indirect taxes (taxes levied on G&S that raise market price) and
subsidies (financial aids given by government that lower the market price).
GDP/GNP (Market Price) – Indirect Taxes + Subsidies = GDP/GNP (Factor Cost)
Capital consumption: loss in value of physical assets (plant and equipment) due to wear and tear;
obsolescence. To maintain productive capacity of country, depreciation must be made good occasionally.
Provision for depreciation = allowance for capital consumption. This also allows for a better picture of the
Gross VS. Net
net flow of goods and services.
GROSS National Product – Depreciation = NET National Product
In referring to NI, Net National Product at Factor Cost is always used. NNP is a better measure of country’s output,
but GNP usually used because it is difficult to ascertain accurately the value of depreciation. Estimates tend to be
imprecise and influenced by income tax laws.
Nominal: total market value of all final goods and services, and therefore has PRICE and QUANTITY
components.
Change in Nominal GDP/GNP may be due to rise in price level, rise in physical output, or both. Therefore to
Real VS. Nominal
determine whether changes are price of quantity related, it is useful to obtain GNP figures in current and
constant prices.
Nominal GDP/GNP: value of output measured at prevailing/current prices
Real GDP/GNP: level of output in terms of physical quantities, effects of price changes removed
MoneyGNP
Re alGNP = Χ100
GNPDeflator
© Wong Yun Sheng Calvin [06S61/21], Page 2
, Difficulties in Measuring NI (not very necessary if you ask me)
1. Arbitrary Definitions
− Different definitions of what is included in NI
− E.g. including activities which are not exchanged for money – therefore no market price and require
imputed value
2. Imputed Values
− Owner Occupied Housing; Employees’ remuneration in kind such as food and lodgings; Goods consumed by
producers themselves; Service of buildings owned and occupied by public authorities
− Difficult to find accurate valuation for these activities, which are likely to differ across countries and be
inaccurate
3. Omissions in measurement of NI
− Non marketed activities: housewives work, community work
− Illegal activities: gambling and smuggling
− Unreported activities: summer jobs, private tuition. Unreported to avoid the taxman, and constitutes a
hidden black economy
4. Difficulty in obtaining reliable and complete information
− Data obtained through sampling, not designed fully for NI calculations
− E.g. income tax returns may fail to cover lower income groups, or people under-report incomes to avoid
higher taxes
5. Difficulty in calculating depreciation
− Different firms use different methods in calculating depreciation, therefore giving different data
− This makes national measurement of depreciation difficult and arbitrary, and makes dealing with gross
output easier
6. Danger of double counting
− Final and intermediate products – intermediate products counted even though they do not contribute
directly to output
− Earned and transfer incomes – no good/service provided when income is transferred
Uses of NI statistics (not very necessary if you ask me)
1. Indicate overall SOL of people
− Real per capita national income used since people’s SOL dependent on amount of goods and services
Real GNP
− Real GNP per capita =
Population
2. Measure the rate of economic growth
− Economic growth represented by outward shift of PPC (achieved through increases in LLCE)
− This growth measured in terms of percentage increase in real output
3. Calculate rate and direction in which national income is growing
− Using output method, we can see contributions made by each sector of the economy
− Can therefore tell the economic condition of each sector (stagnating, growing, declining) and allow effective
policies to be made
4. Indicate distribution of factor incomes among wage earners and property owners
− Using income method, we can obtain the income distribution amongst different workers
5. Assist in formulating policies
− To achieve various internal and external macroeconomic goals, governments can refer to NI figures when
formulating policies (taxation, foreign trade, public investment etc.)
6. Assist firms in marketing and research
− Income level of individuals help businesses determine pattern of consumption
− E.g. disposable income of consumers gives a gauge of their ability to buy – helps firms to decide when to
release new products
7. Assist international economic planning
− E.g. individual country contribution to the UN’s aid and assistance programmes determined by the size of its
NI
Comparisons of National Income (this, on the contrary, is extremely necessary)
© Wong Yun Sheng Calvin [06S61/21], Page 3
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