RI H1 Economics Lecture Notes 5 Introduction to Macroeconomics

RAFFLES INSTITUTION YEAR 6 H1 ECONOMICS 2019 ECONOMICS CONTENTS: Introduction to Macroeconomic •AD-AS MODEL •FACTORS CAUSING CHANGES •The Multiplier Effect Factors Affecting the Standard of Living 1.Economic Growth 2.Price Stability 3.Employment 4.Other Factors Macroeconomic Policies to Improve the Standard of Living 1.Fiscal Policy 2.Monetary Policy (Interest rate & Exchange Rate) 3.Supply-side Polices Students will understand the concept of standard of living and its significance for countries. Students will examine domestic and external factors that affect a country’s standard of living. Students will examine how governments make policy choices at the national level in order to improve living standards. MACROECONOMICS LECTURE NOTES @dream

2019 Y6 H1 Economics Macroeconomics 1 RAFFLES INSTITUTION YEAR 6 H1 ECONOMICS 2019 Outline of Contents 1 AN INTRODUCTION 1.1 What is Macroeconomics? 2. AGGREGATE DEMAND (AD) / AGGREGATE SUPPLY (AS) MODEL 2.1 Aggregate Demand 2.2 Aggregate Supply 2.3 AD-AS MODEL AND EQUILIBRIUM LEVEL OF NATIONAL OUTPUT AND GENERAL PRICE LEVEL 3. CHANGES IN EQUILIBRIUM LEVEL OF NATIONAL OUTPUT CAUSED BY NON- GENERAL PRICE LEVEL FACTORS 3.1 Factors That Affect Aggregate Demand 3.2. Factors That Affect Aggregate Supply 4 CHANGE IN EQUILIBRIUM LEVEL OF NATIONAL INCOME 5 THE MULTIPLIER EFFECT Reference Mankiw, Gregory N., Quah, Euston, & Wilson, Peter, Principles of Economics: An Asian Edition, Chapter 33, Cengage Learning. At the end of this lecture series, you should be able to: 1. Explain what is meant by macroeconomics. 2. Explain the key determinants of AD and AS. 3. Explain how equilibrium output and price are determined using the AD/AS model. 4. An awareness of an increase in AD having a multiplied effect on national income INTRODUCTION TO MACROECONOMIC @dream

2019 Y6 H1 Economics Macroeconomics 2 1 A QUICK RECAP 1.1 What is Macroeconomics? Economics is traditionally divided into 2 parts: Microeconomics and Macroeconomics. Macroeconomics is on the aggregate economy as it considers the economy as a whole. Macroeconomics also studies relationships and connections between one country and another for example, how a slowdown in the Chinese economy can affect Singaporean businesses or how Brexit will affect Singaporean based firms exporting to UK and also other countries around the world. The scope of macroeconomics includes looking at the success or failure of government policies – for example does the government have effective and fair policies for cutting unemployment? Or has the government succeeded in creating the conditions for a durable and balanced recovery? In macroeconomics we look at things ‘in the whole’ and, in doing so, we use these terms regarding the different stakeholders of every economy: Households: Receive income through wages and salaries from their jobs and then buy the output of firms (this is known as consumer spending and is labelled as C)