F585 the global economy indicators


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  • The slides that follow will put the demand curve and supply curve together. The emphasis is on explaining the PROCESS by which markets change.The initial starting point will be the basic equilibrium position Students can be advised that this type of analysis begins with a starting point, introduces some form of change and then analyses the process by which prices and quantity will change and the reasons for this. The first slide deals with a fall in demand. The reasons for the fall in demand could be related to an event occurring at the time but needs to be linked in to the formula given earlier. As demand falls consumers now wish to purchase less at each price. The emphasis must be on the fact that suppliers cannot control demand and therefore do not necessarily anticipate such changes, they therefore need time to be able to react. The fall in demand will mean that some suppliers will not be selling as many items, a surplus will develop (highlighted by a flashing ‘surplus’ sign) that will force prices down. A new equilibrium will be established where the new demand curve intersects with the existing supply curve at a lower price and with less items bought and sold. There is much room for confusion of this process and students need time to be able to experiment with it to reflect on it and build it into their learning. The second slide deals with a change in supply – this time creating a shortage. The same process occurs but in reverse. The next stage would be to get students to explain what would happen if the demand rose and if supply also rose.
  • F585 the global economy indicators

    1. 1. F585 The Global Economy F585 – global economy Theme 1 : UK economy
    2. 2. Real GDP <ul><li>Definition – this is the figure that shows the total output within an economy that has been adjusted to allow for the effect of inflation </li></ul><ul><li>(Real – figures that are changed to remove the effect of inflation) </li></ul>
    3. 3. Growth in Real GDP
    4. 4. Inflation <ul><li>Definition – a general increase in prices </li></ul>
    5. 5. Inflation <ul><li>http://www.bankofengland.co.uk/publications/inflationreport/mktcpinov09large.gif </li></ul>
    6. 6. Unemployment <ul><li>Definition – a situation where people are unable to find jobs but are willing and able to work </li></ul>
    7. 7. Unemployment
    8. 8. Balance of Payments <ul><li>Definition – this is a record of the trade in imports and exports in an economy </li></ul>
    9. 9. Balance of Payments <ul><li>http://www.statistics.gov.uk/cci/nugget.asp?ID=194 </li></ul>
    10. 10. Short Run <ul><li>The period of time during which the quantity of at least 1 factor of production is fixed and the others are variable. </li></ul><ul><li>E.g. it is easy to change the level of labour relatively quickly although in the same period of time you cannot suddenly build a new warehouse (capital) </li></ul>
    11. 11. Long Run <ul><li>The period of time during which the quantity of all factors of production are variable. </li></ul><ul><li>Its is possible to build new factories, implement new production lines and other large scale projects. </li></ul>
    12. 12. Short Run Economic Growth ( actual growth) <ul><li>This is the annual percentage increase in the output of the economy. </li></ul><ul><li>You may see GDP growth rates being mentioned in the press, they are referring to actual growth. </li></ul>
    13. 13. Long Run Economic Growth (potential growth) <ul><li>This is the percentage rate of growth in potential output. Potential output being the output that could be achieved at full employment. </li></ul><ul><li>Essentially it shows the rate at which the economy could grow. </li></ul>
    14. 14. Short Run & Long Run Economic Growth on a PPF Goods Services 0 W Z X Y
    15. 15. Short Run Economic Growth – increase in aggregate demand Price level Real GDP AS AD 1 0 Yf Y 2 Y 1 AD 2 P 1 P 2
    16. 16. Short Run Economic Growth – decrease in aggregate demand Price level Real GDP AS AD 2 0 Yf Y 1 Y 2 AD 1 P 2 P 1
    17. 17. Assessing the changes - BIG Price level Real GDP AS 0 Yf Macro equilibrium price and real GDP are not labelled – diagram to show effects only
    18. 18. Assessing the changes - small Price level Real GDP AS 0 Yf Macro equilibrium price and real GDP are not labelled – diagram to show effects only
    19. 19. SRAS Curve shifts Price Level Real GDP SRAS 1 P 1 Y 1 0 AD P 2 Y 2 SRAS 2 Y 3 P 3 SRAS 3
    20. 20. Firms Households C Banks Government Other nations Factor Payments Leakages Injections Savings Taxes Import Expenditure (M) Investment (I) Government Expenditure (G) Export Expenditure (X) Circular Flow of Income Land – Rent Labour – Wages Capital – Interest Enterprise – Profit
    21. 21. Marginal Propensity to Withdraw Where: Y = national income s = savings t = tax m = imports
    22. 22. The Multiplier <ul><li>The Multiplier = </li></ul><ul><li>(k) </li></ul><ul><li>1 </li></ul><ul><li>Marginal Propensity to Withdraw </li></ul><ul><li>(MPW) </li></ul><ul><li>(MPS + MPT + MPM) </li></ul>
    23. 23. Multiplier Example (MPS) <ul><li>Marginal Propensity to Save </li></ul><ul><li>(MPS) </li></ul><ul><li>∆ s </li></ul><ul><li>∆ Y </li></ul><ul><li>Investment = £16bn </li></ul><ul><li>Savings = £3.2bn </li></ul><ul><li>therefore </li></ul>3.2 = 0.2 16
    24. 24. Multiplier Example (MPT) <ul><li>Marginal Propensity to Tax </li></ul><ul><li>(MPT) </li></ul><ul><li>∆ t </li></ul><ul><li>∆ Y </li></ul><ul><li>Investment = £16bn </li></ul><ul><li>Tax = £1.6bn </li></ul><ul><li>therefore </li></ul>1.6 = 0.1 16
    25. 25. Multiplier Example (MPM) <ul><li>Marginal Propensity to Import </li></ul><ul><li>(MPM) </li></ul><ul><li>∆ m </li></ul><ul><li>∆ Y </li></ul><ul><li>Investment = £16bn </li></ul><ul><li>Imports = £1.6bn </li></ul><ul><li>therefore </li></ul>1.6 = 0.1 16
    26. 26. Multiplier Example (MPM) <ul><li>  The Multiplier (k) </li></ul><ul><li>1 </li></ul><ul><li>Marginal Propensity to Withdraw (MPW) </li></ul><ul><li>(MPS + MPT + MPM) </li></ul><ul><li>MPS = 0.2 </li></ul><ul><li>MPT = 0.1 </li></ul><ul><li>MPM = 0.1 </li></ul><ul><li>therefore </li></ul>k = 1 (0.2 + 0.1 + 0.1) 1 = 2.5 0.4
    27. 27. Multiplier example – increase in National Income <ul><li>Initially £16bn was invested into the UK economy by the firm </li></ul><ul><li>The multiplier has been used to calculate the increase in national income </li></ul><ul><li>£16bn x 2.5 = £40bn </li></ul>
    28. 28. Accelerator model <ul><li>The accelerator model is based on an assumption of a stable (or fixed) capital to output ratio. </li></ul><ul><li>Planned investment is demand induced. IE the demand for new plant and machinery comes from the demand for final goods and services. </li></ul><ul><li>It is not primarily to do with interest rates </li></ul>
    29. 29. PPFs and The Trade Cycle A B C A A B C PPF Trade Cycle Goods Services 0 0 Time Output
    30. 30. Growth and trade <ul><li>THEORY: Countries can exceed the boundaries of their Production Possibilities Curves through trade. </li></ul><ul><li>Both countries can be made better off, defined as having a higher a standard of living through trade. </li></ul><ul><li>The UK is a trading economy. </li></ul><ul><li>The UK does most of its trade with the EU </li></ul><ul><li>There are new trading blocs outside the EU </li></ul><ul><li>UK has exhibited a deficit on the current account but has success in high value industries ( see Rolls Royce article) . </li></ul>
    31. 31. Trade policies <ul><li>The big debate is </li></ul><ul><ul><li>Free trade V protectionism </li></ul></ul>Trade policy can influence the demand OR the supply side.