The purpose of this section is to provide students with the opportunity for a detailed examination of the major macroeconomic issues facing countries’ economic growth, economic development, unemployment, inflation, and income distribution.
Section 4 deals with external equilibrium. Income distribution is introduced here in section 3 but is addressed in greater detail in section 5.
The economic strategies available to governments such as demand-side policies, supply-side policies, and direct intervention are introduced and evaluated. These policies are applicable to almost all areas of macroeconomics, international economics and development economics.
3.1 Measuring national income
- Circular flow of income
- Methods of measurement: income, expenditure and output
- Distinction between:
- gross and net
- national and domestic
- nominal and real
- total and per capita
3.2 Introduction to development
- Definitions of economic growth and economic development
- Differences in the definitions of the two concepts
- Gross Domestic Product (GDP) versus Gross National Product (GNP) as measures of growth
- Limitations of using GDP as a measure to compare welfare between countries
- Allowances for differences in purchasing power when comparing welfare between countries
- Alternative methods of measurement
- Problems of measuring development
3.3 Macroeconomic models
- Aggregate demand and its components
- Aggregate supply
- short-run
- long-run (Keynesian versus neo-classical approach)
- Full employment level of national income
- Equilibrium level of national income
- Inflationary gap
- Deflationary gap
- Diagram illustrating trade/business cycle
3.4 Demand-side and supply-side policies
- Shifts in the aggregate demand curve/demand-side policies
- fiscal policy
- interest rates as a tool of monetary policy
- Shifts in aggregate supply curve/supply-side policies
- Strengths and weaknesses of these policies
- Multiplier
- calculation of multiplier
- Accelerator
- “Crowding out”
3.5 Unemployment and inflation
Unemployment
- Unemployment rate
- Costs of unemployment
- Types of unemployment
- structural
- frictional
- seasonal
- cyclical/demand-deficient
- real wage
- Measures to deal with unemployment
Inflation
- Definitions of inflation and deflation
- Costs of inflation and deflation
- Causes of inflation
- cost push
- demand pull
- excess monetary growth
- Methods of measuring inflation
- Problems of the methods of measuring inflation
- Phillips curve
- short-run
- long-run
- Natural rate of unemployment
- Non-Accelerating Inflation Rate of Unemployment (NAIRU)
3.6 Distribution of income
- Direct Taxation
- Indirect taxation
- Progressive taxation
- Proportional taxation
- Regressive taxation
- Transfer payments
- Laffer curve
- Lorenz curve and Gini coefficent