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Notes for the IB course in the subject of Economics HL for Microeconomics and Macroeconomics R1.936,26   Add to cart

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Notes for the IB course in the subject of Economics HL for Microeconomics and Macroeconomics

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Se trata de resúmenes realizados durante el curso con la ayuda del profesor que cubre dos de los tres bloques a estudiar en Economics HL en el IB. Todos los puntos están bien redactados con ejemplos y imágenes que ayudan a la comprensión y a hacer el estudio más ameno.

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  • December 20, 2021
  • December 20, 2021
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3.1 Measuring economic activity and variations

Macro is concerned with 6 key variables

1. Economic growth
★ Increase in national output
2. Employment
★ A low level of unemployment
3. Price stability
★ A low and stable rate of inflation
4. External stability
★ Favourable balance of payments
5. Income distribution and levels of poverty - Equity in the distribution of income
6. Sustainable level of govt debt

Total economic output = national income = GDP (gross domestic product)

Factors of production and the payment for each one:

1. Labour = wages
2. Land = rent
3. Capital = interest
4. Management/Entrepreneurship = profits

2 sector circular flow of income model




Measure national income

,The most common method is Gross Domestic Product (GDP)

3 methods can be used to calculate it:

1. Output method - the actual value of goods and services produced
➔ Grouped according to the different production sectors
2. Income method - the value of all incomes earned in the economy
3. Expenditure method - the value of spending on goods and services in the economy.

C + I + G + (X-M)

C = Consumption = spending by households on final goods and services

I = Investment = spending by firms on capital goods and new construction

G = Government = spending by governments and includes govt investment

X = Net exports = income earned by selling exports minus income spent on imports




GDP: the total value of all final goods and services produced in an economy in a year.




4 sector circular flow of income model




Leakages and injections

, ➔ Saving: foregoing current consumption to allow for consumption in the future.
➔ Saving is a leakage as it is income received that is not spent on goods/services.
➔ Leakages reduce the size of income in the circular flow
➔ Firms have access to savings of households by borrowing money from banks.
➔ This money can be spent on increasing stock of capital and therefore output.
➔ This is investment and is an injection into the circular flow.
➔ Injections increase the size of income in the circular flow.

Difference between GDP and GNP/GNI

GDP: the total of all economic activity in a country (irrespective of who owns the productive
assets)

GNP/GNI: the total of all income that is earned by a country’s factors of production (regardless
of where the assets are located)

Net property income from abroad

Property income from abroad (Income from assets held in foreign countries)

-

Income paid to foreign assets

=

Net Property Income from abroad

GNP/GNI

➔ GNI = GDP + net property income from abroad

NNI: Net national income

➔ A country’s capital stock (infrastructure and machinery) loses some of its value over a
year.
◆ depreciation
➔ GDP does not take account of depreciation but NNI does
◆ NNI = GNI - depreciation

Difficult to estimate depreciation of a country’s assets, typically estimated at 10%




Nominal and Real GDP

, What is the percentage growth in GDP between the 2 years?

But we haven’t taken account of inflation.

If inflation is 5%, what happens?

$110 bn x 100/105 -> Real GDP = $104.76bn



Year Nominal GDP

2018 100$ billion

2019 110$ billion




Why is this data collected?

➔ To assess the level of economic growth. Acts as a report card.
➔ Helps in developing and applying policies
➔ Economists make predictions about the future
➔ Businesses can forecast future demand
➔ Analyse performance over time
➔ Can be used to evaluate the quality of life in a country
➔ Comparing different countries

Limitations of the data

Inaccuracies:

- huge range of sources are used
- Time lag
- Developed countries have pretty reliable systems

Unrecorded activity:

- Not all activity is recorded. Doing DIY at home
- Not a factor in developed countries.

Hidden economy:

- Income from illegal sources e.g. drug trafficking
- Illegal immigrants working in the black economy
- Tax evasion and the role of high taxes

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