Week4-5 Study Material

Course- Economics GM545
Week 4: Introduction to Macroeconomics
Basics of Macroeconomics
Macroeconomic Cycles
Introduction | |
As groundwork for the study of economic cycles, we will concentrate this week on some basic macroeconomic variables: gross domestic product (GDP), unemployment, and inflation.
These variables are all related in important ways. For example, business firms will produce the volume of goods and services they plan to be able to sell in the next period.  GDP measures this flow of output of goods and services.  However, if consumers do not choose to purchase all output that is produced, inventories of unsold goods will accumulate and business firms will cut back on output for the next period. This will result in an increase in the unemployment rate or even a recession. Conversely, consumers may desire to purchase more goods and services than the business sector is able to produce in a given period, and this excessive demand will lead to inflation.
Basics of Macroeconomics | |
Macroeconomics is the study of the aggregate economy; e.g., the entire U.S., German, or Indian economy. Normally, a nation adopts a set of accounts through which to measure its economy. In the U.S.'s case, the national income and product accounts (NIPA's) constitute the accounting system used to measure the U.S. economy.
GDP is a measure of the value of all final goods and services produced on U.S. domestic soil during a specified period—normally, one year. Please note that the following equation is usually used to denote the GDP equivalence:
GDP = C + I + G + NX

where C is consumption, I is investment, G is for government consumption and investment, and NX is net exports (exports less imports).

GDP is a measure of the economy using the goods that are produced. Yet there is another measure of the economy using the incomes that are generated by the production processes, gross domestic income (GDI). A slightly more familiar income-side...