2023-2024

Presentation in
macroeconomics

MACROENOMICS
GROUP VIII

© Prepared and taught by : Amara NABE, Mr Page 1 of 1

Task 1 :

Definition:
The Keynesian economic theory and the classical economic theory (also known as the market
economy) have different perspectives on the role of government intervention+e and the concept of
the "invisible hand" in the economy.

The classical economic theory, associated with economists like Adam Smith, argues for a free-market
economy where the "invisible hand" of the market forces of supply and demand will naturally lead to
an efficient allocation of resources and full employment. The classical theory believes that the market
is self-regulating, and government intervention is unnecessary and can even be harmful, as it distorts
the natural functioning of the market.

In contrast, the Keynesian economic theory, developed by John Maynard Keynes, argues that the
market economy is not inherently self-regulating and can experience periods of high unemployment
and economic stagnation. Keynes believed that in such situations, government intervention through
fiscal and monetary policies is necessary to stimulate economic activity and achieve full employment.

Fiscal and monetary :

Certainly! Fiscal policy and monetary policy are two distinct economic tools used by governments and
central banks to influence the overall economic conditions of a country.

Fiscal Policy:
Fiscal policy refers to the use of government spending and taxation to influence the economy. It
involves the following:

1. Government Spending: The government can increase or decrease its spending on various public
goods and services, such as infrastructure, education, healthcare, and social welfare programs.
Increased government spending can stimulate economic growth, while decreased spending can slow
down the economy.

2. Taxation: The government can adjust tax rates and policies to influence consumer spending,
investment, and overall economic activity. Lowering taxes can increase disposable income and
encourage spending, while raising taxes can slow down economic growth.

Fiscal policy is primarily implemented by the government's finance ministry or treasury department.

Monetary Policy:
Monetary policy refers to the actions taken by a country's central bank to control the money supply
and interest rates in order to achieve economic objectives. It involves the following:

1. Interest Rates: The central bank can adjust the key interest rates, such as the benchmark interest
rate or the federal funds rate, to influence the cost of borrowing and the availability of credit in the
economy. Lowering interest rates can stimulate economic growth, while raising interest rates can slow
down inflation.

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2. Money Supply: The central bank can also control the money supply by buying or selling government
securities (e.g., bonds) in the open market. Increasing the money supply can lead to lower interest rates
and more economic activity, while decreasing the money supply can help control inflation.

Monetary policy is primarily implemented by a country's central bank, such as the Federal Reserve in
the United States or the European Central Bank in the European Union.

In summary, fiscal policy focuses on government spending and taxation, while monetary policy focuses
on interest rates and the money supply. Both tools are used by policymakers to achieve economic
objectives, such as promoting economic growth, controlling inflation, and maintaining employment
levels.

How to use them and who carry them out:

Fiscal and monetary policy are two key tools used by governments and central banks to manage the
economy. Here's an explanation of how and when they are used, and who carries them out:

Fiscal Policy:
- Fiscal policy refers to the use of government spending, taxation, and borrowing to influence the
economy.
- It is carried out by the government, typically the finance ministry or treasury department.
- Fiscal policy can be used to stimulate the economy during recessions by increasing government
spending and/or cutting taxes to boost consumer demand.
- Conversely, fiscal policy can be used to cool down an overheating economy by reducing government
spending and/or raising taxes to curb inflation.
- Examples of fiscal policy tools include changes in government spending on public projects,
adjustments to tax rates, and issuance of government debt.

Monetary Policy:
- Monetary policy refers to the actions taken by central banks to influence the money supply and
interest rates.
- It is carried out by central banks, such as the Federal Reserve in the US, the European Central Bank,
or the Bank of England.
- Monetary policy tools include adjusting key interest rates, buying and selling government securities,
and setting reserve requirements for banks.
- Central banks can use monetary policy to stimulate the economy by lowering interest rates and
increasing the money supply, or to fight inflation by raising interest rates and tightening the money
supply.

Combination of Fiscal and Monetary Policy:

- Governments and central banks often use a combination of fiscal and monetary policy tools to achieve
their economic objectives.
- For example, during an economic downturn, the government may implement fiscal stimulus
measures, such as increased spending on infrastructure projects, while the central bank simultaneously
lowers interest rates to encourage borrowing and investment.
- Conversely, during periods of high inflation, the government may raise taxes and cut spending, while
the central bank increases interest rates to tighten the money supply.

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- The coordination and timing of fiscal and monetary policy actions can be crucial in achieving the
desired economic outcomes.

In summary, fiscal policy is carried out by the government, while monetary policy is implemented by
central banks. Policymakers often use a combination of these tools to manage the economy, depending
on the prevailing economic conditions and the desired policy objectives.

GDP purposes in economic :

The purpose of Gross Domestic Product (GDP) in an economy is to measure the total value of all goods
and services produced within a country's borders over a specific period, usually a year. GDP serves
several important functions:

1. Economic Growth Measurement: GDP is the primary indicator used to track the overall health and
growth of an economy. It provides a quantitative measure of a country's economic performance and
allows for comparisons over time and between different economies.

2. Standard of Living Indicator: GDP per capita, which is the GDP divided by the population, is often
used as a proxy for the standard of living in a country. A higher GDP per capita generally indicates a
higher level of economic prosperity and access to goods and services.

3. Policy Decision-Making: Governments and policymakers use GDP data to inform their economic
policies and decisions. GDP growth rates, for example, can guide decisions on interest rates, taxation,
government spending, and other fiscal and monetary policies.

4. International Comparisons: GDP allows for the comparison of economic output and performance
between different countries. This information is valuable for trade negotiations, foreign investment
decisions, and understanding the relative economic power of nations.

5. Macroeconomic Analysis: Economists and analysts use GDP data to study the overall trends and
patterns in an economy, such as the business cycle, inflation, and productivity growth. This information
is crucial for economic forecasting and policy planning.

It's important to note that while GDP is a widely used metric, it has some limitations and does not
capture all aspects of a country's economic and social well-being, such as income inequality,
environmental sustainability, or the quality of life. Policymakers and economists often consider a range
of other indicators alongside GDP to gain a more comprehensive understanding of a country's
economic and social progress.

Calculating GDP?
Certainly! The Gross Domestic Product (GDP) is a comprehensive measure of the economic activity
within a country. There are three main approaches to calculating GDP, each focusing on different
aspects of the economy:

1. The Expenditure Approach:

- This approach calculates GDP by adding up the total expenditures on final goods and services in the
economy.
- The main components of this approach are:
- Consumption (C): Spending by households on goods and services.

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 - Investment (I): Spending by businesses on capital goods, such as machinery, equipment, and
structures.
- Government Spending (G): Spending by the government on goods and services.
- Net Exports (NX) : Exports (X) minus Imports (M).
- The expenditure approach can be represented by the equation: GDP = C + I + G + NX.

2. The Income Approach:

- This approach calculates GDP by adding up the total income earned by all the factors of production
in the economy.
- The main components of this approach are:
- Compensation of Employees: Wages, salaries, and benefits paid to workers.
- Gross Operating Surplus: Profits earned by businesses.
- Gross Mixed Income: Income earned by self-employed individuals and unincorporated businesses.
- Taxes on Production and Imports: Taxes paid by businesses, minus any subsidies received.
- The income approach can be represented by the equation: GDP = Compensation of Employees +
Gross Operating Surplus + Gross Mixed Income + Taxes on Production and Imports.

3. The Value-Added Approach:

- This approach calculates GDP by adding up the value added at each stage of production.
- The value added is the difference between the value of a firm's output and the value of the
intermediate goods and services used in producing that output.
- The value-added approach avoids double-counting, as it only includes the final value of goods and
services, not the intermediate inputs.
- This approach is often used in the analysis of specific industries or sectors within the economy.

All three approaches should yield the same result for the overall GDP, as they are measuring the same
economic activity from different perspectives. The choice of approach depends on the specific purpose
of the analysis and the availability of data.

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TASK 2 :

#1: quantities of finished goods and an imagined economy from 2014 to 2019:

Outputs in
Goods and Outputs in Outputs Outputs in Outputs in Outputs in
2014 (base
services 2015 in 2016 2017 2018 2019
year)
Rice 40 41.8 42.3 43.8 44.4 44.2
Petrol 36 36.9 36.5 36.9 37.3 38.2
Bus faces 6 6.9 7.1 6.9 7.0 7.3
Bread 76 6.09 6.3 6.4 6.4 6.5
Electricity 100 102.5 105.1 106.6 107.2 106.9
Cooking oil 20 20.2 20.9 21.1 21.3 22.3

Total basket
of goods 278 282.17 218.2 221.8 223.5 225.3
and services

#2: Production growth rate of finished goods and services of the imagined economy from 2014 to
2019:

Goods and Growth rate of Growth rate Growth rate Growth rate Growth rate of
services 2015 of 2016 of 2017 of 2018 2019

Rice 4.5% 1.3% 3.5% 1.3% -0.5%

Petrol 2.5% -1.0% 1.0% 1.0% 2.5%

Bus faces 1.5% 2.5% -2.0% 1.5% 3.5%

Bread 2.5% 3.0% 2.5% -1.0% 2.5%

Electricity 1.0% 2.5% 1.5% 0.5% -0.3%

Cooking oil -1.5% 3.5% 1.0% 0.9% 4.5%

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 TASK 3:

#3: Price level of baskets of goods and services of the imagined economy from 2014 to 2019

Goods & Year 2014

Service (base year): Year 2015 Year 2016 year 2017 Year 2018 Year 2019
Rice
GNF 15,000 GNF 15,210 GNF 15,332 GNF 15,792 GNF 16,976 GNF 16,721
Petrol
GNF 22,500 GNF 23,018 GNF 23,685 GNF 23,330 GNF 23,330 GNF 23,330
Bus faces
GNF 3,750 GNF 3,769 GNF 3,799 GNF 3,799 GNF 3,822 GNF 3,841
Bread
GNF 5,000 GNF 5,040 GNF 5,116 GNF 5,116 GNF 5,157 GNF 5,198
Electricity
GNF 325,000 GNF 325,650 GNF 325,650 GNF 334,117 GNF 334,785 GNF 332,107
Cooking
oil GNF 50,000 GNF 50,600 GNF 51,966 GNF 51,187 GNF 51,187 GNF 52,671
Base year
price
level GNF 421,250 GNF 423,286 GNF 425,547 GNF 433,339 GNF 435,256 GNF 433,868

#4 Price change of baskets goods and services from 2014 to 2019:

Goods & Price change Price change Price change Price change Price change
Service rate of 2015 rate of 2016 rate of 2017 rate of 2018 rate of 2019
Rice
1.4% 0.8% 3.0% 7.5% -1.5%
Petrol
2.3% 2.9% -1.5% 0.0% 0.0%
Bus faces
0.5% 0.8% 0.0% 0.6% 0.5%
Bread
0.8% 1.5% 0.0% 0.8% 0.8%
Electricity
0.2% 0.0% 2.6% 0.2% -0.8%
Cooking oil
1.2% 2.7% -1.5% 0.0% 2.9%

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 Task 4:

E) 2014 GDP, in the base year real GDP and nominal GDP are the same:

Goods & Outputs in 2014 Year 2014 (base

PRICE LEVEL NOMINAL PRICE LEVEL REAL
services: (base year): year):
Rice 40 15 000 GNF 600 000 GNF 600 000 GNF
Petrol 36 22 500 GNF 810 000 GNF 810 000 GNF
Bus fares 6 3 750 GNF 22 500 GNF 22 500 GNF
Bread 76 5 000 GNF 380 000 GNF 380 000 GNF
Electricity 100 325 000 GNF 32 500 000 GNF 32 500 000 GNF
Cooking oil 20 50 000 GNF 1 000 000 GNF 1 000 000 GNF
Total basket of
278 421 250 GNF 35 312 500 GNF 35 312 500 GNF
goods & services

F) Nominal GDP from 2015 to 2019:

PRIC PRIC PRIC PRIC PRIC

E E E E E
Good
Outp Year LEVE Outp Year LEVE Outp Year LEVE Outp Year LEVE Outp Year LEVE
s &
uts in in L uts in in L uts in in L uts in in L uts in in L
servi
2015 2015 NOM 2016 2016 NOM 2017 2017 NOM 2018 2018 NOM 2019 2019 NOM
ces:
MIN MIN MIN MIN MIN
AL AL AL AL AL
15 635 15 649 15 691 16 753 16 738
42,3 43,8 44,3 44,1
Rice 41,8 210 778 332 143 792 989 976 565 721 582
4 2 9 7
GNF GNF GNF GNF GNF GNF GNF GNF GNF GNF
23 849 23 865 23 860 23 881 23 903
Petro 36,5 37,2
36,9 018 346 685 213 36,9 330 867 656 672 38,2 656 673
l 3 7
GNF GNF GNF GNF GNF GNF GNF GNF GNF GNF
3 22 23 23 23 24
Bus 3 799 3 799 3 852 3 871
6,09 769 952 6,24 705 6,12 249 6,21 921 6,43 893
Fares GNF GNF GNF GNF
GNF GNF GNF GNF GNF GNF
5 392 410 420 419 433
Brea 80,2 5 116 82,2 5 116 81,4 5 157 83,4 5 198
77,9 040 616 476 758 895 858
d 4 GNF 5 GNF 3 GNF 7 GNF
GNF GNF GNF GNF GNF GNF
325 32 33 35 35 34
325 334 334 332
Elect 650 890 103, 714 105, 109 105, 356 105, 967
101 650 117 785 107
ricity GNF 650 53 545 08 004 61 658 29 530
GNF GNF GNF GNF
GNF GNF GNF GNF GNF
Cook 50 996 51 1 059 51 1 053 51 1 063 52 1 144
20,3 20,5 20,7 21,7
ing 19,7 600 820 966 591 187 934 187 660 671 017
9 9 8 2
oil GNF GNF GNF GNF GNF GNF GNF GNF GNF GNF
Total
GDP 35 788 161 GNF 36 722 673 GNF 38 159 802 GNF 38 499 371 GNF 38 212 553 GNF

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 G) Real GDP from 2015 to 2019:

PRICE PRICE PRICE PRICE PRICE

Year in Outputs Outputs Outputs Outputs Outputs
LEVEL LEVEL LEVEL LEVEL LEVEL
2014 in 2015 in 2016 in 2017 in 2018 in 2019
REAL REAL REAL REAL REAL
15 000 627 000 635 100 657 300 665 850 662 550
41,8 42,34 43,82 44,39 44,17
GNF GNF GNF GNF GNF GNF
22 500 830 250 821 925 830 250 838 575 859 500
36,9 36,53 36,9 37,27 38,2
GNF GNF GNF GNF GNF GNF
3 750 22 838 23 400 22 950 23 288 24 113
6,09 6,24 6,12 6,21 6,43
GNF GNF GNF GNF GNF GNF
5 000 389 500 401 200 411 250 407 150 417 350
77,9 80,24 82,25 81,43 83,47
GNF GNF GNF GNF GNF GNF
325 000 32 825 33 647 34 151 34 323 34 219
101 103,53 105,08 105,61 105,29
GNF 000 GNF 250 GNF 000 GNF 250 GNF 250 GNF
50 000 985 000 1 019 1 029 1 039 1 086
19,7 20,39 20,59 20,78 21,72
GNF GNF 500 GNF 500 GNF 000 GNF 000 GNF
Total
real GDP 35 679 588 GNF 36 548 375 GNF 37 102 250 GNF 37 297 113 GNF 37 268 763 GNF

H) Inflation rate from 2014 to 2019:

Consumer Price Level Inflation

Years Total Price level % Years Rate
(CPI)

2014 421 250 GNF 100 100 - -

2015 423 286 GNF 100 100,48 2014-2015 0,48%

2016 425 547 GNF 100 101,02 2015-2016 1,02%

2017 433 339 GNF 100 102,87 2016-2017 2,87%

2018 435 613 GNF 100 103,41 2017-2018 3,41%

2019 434 225 GNF 100 103,08 2018-2019 3,08%

I) GDP growth rate from 2015 to 2015:

GDP Year
Year Real GDP % GDP Growth Rate
Growth Rate
2015 35 679 588 GNF 100 - -
2016 36 548 375 GNF 100 2015-2016 2,43%
2017 37 102 250 GNF 100 2016-2017 1,52%
2018 37 297 113 GNF 100 2017-2018 0,53%
2019 37 268 763 GNF 100 2018-2019 -0,08%

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Task 5:

J- The table tells us that

K- The equilibrium is:

Eqp= GNF 65

EQq= 340

Aggregate demande and aggregate supply curve

90
85 85
80 80
75 75
70 70
65
60 60
55 N)Equilibrium 55
50 price & quantity
Price

45
40
35
30
25
20

10

0
300 320 340 360 370 380 385

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 FORMULAS
Task1
• Income approach: GDP/y= C+T+S
• Expenditure approach: GDP/y= C+I+G+XN

Task2
• Quantity growth= (current year quantity x growth rate) + current year quantity.
• Total quantity level= adding all the goods and services respectively to their years.

Task3
• Price growth= (actual year price x price change rate) + actual year price.
• Total price level= adding all of the goods and services respectively to their year.

Task4
• Nominal GDP= current year price x current year quantity
• Real GDP= base year price x current year quantity
• Inflation rate= (total basket price level of one year/total basket base price level) x 100
• GDP growth rate= (real GDP current - real GDP previous/real GDP previous) x 100%