Macroeconomics
Ag Economics 210
M. Boyd
Definition:
• Macroeconomics:
– Deals with totals or aggregates
– Studying characteristics of the entire economy
such as:
• unemployment
• total consumer income
• price levels of all goods and services
National Income Accounts
• Measure the performance of the economy
• Economists look at the circular flow of
money
• Two major areas in the circular flow of
money:
– Households
– Business firms
National Income Accounts
• Households - sell their labor
and other resource services to
business firms in return for
income which in turn is used to
pay for the goods and services
produced by the business firms.
• Business firms - purchase labor
and other services from
households in order to produce
the final products for sale to
households
• What’s missing?
Gross Domestic Product
• GDP - the total market value of all the
finished goods and services produced within
the domestic economy whether by foreign
or American resources in a given time
period.
– An important measure of the overall “health”
(productivity) of the economy.
Nominal Values and Real Values
• Nominal value = the dollar value of goods and
services at their current market prices.
– Do not account for inflation -
– Candy bar example - no increase in amount produced but GDP
would increase
• Real Value = used in an economic context means
the values are being expressed in “Constant”
dollars - dollars adjusted for inflation.
– Indexes such as the CPI (Consumer Price Index) are used to adjust
for inflation.
– Example in text page 224
Tools of Macroeconomics -
Aggregate Demand & Supply
• Aggregate Demand Curve - (AD) shows the
amounts of real goods and services that consumers
are willing to purchase at various prices.
– Remember, AD is the overall demand for ALL
goods/services.
• Aggregate Supply Curve - (AS) Shows the
amounts of real goods and services that producers
are willing to supply at various market prices.
– AS is the overall supply of ALL goods/services
Aggregate Demand
• At a high price P0 a
smaller quantity is
purchased Q0.
• At a lower price P1, a
larger quantity Q1 is
purchased.
• Inverse relationship
between price and
quantity demanded.
• Interest rates - the price of
money.
Aggregate Supply
• Aggregate supply
reflects a positive
relationship between
price level and
aggregate real output.
To be continued….