Macroeconomics

Table of Contents

1. Topic pack - Macroeconomics - introduction
2. 2.1 The level of overall economic activity (notes)
   1. Overall economic activity - introduction
   2. The circular flow of income model (1)
   3. Circular flow - two sector closed
   4. Circular flow - two sector open
   5. Circular flow - three sector open
   6. Circular flow - government
   7. The circular flow of income model (2)
   8. Circular flow - a summary
   9. Some mathematics
   10. Measures of economic activity
   11. Examining the three methods of calculating national income
   12. What is GDP? (video)
   13. Different national income measures
   14. Real v money data
   15. Current and constant prices
   16. Using index numbers
   17. Total and per capita
   18. Case study - rapid economic growth
   19. Using national income data
   20. Purchasing power of GDP
   21. Alternative measures of GDP
   22. Case Study
   23. Short term fluctuations and long term trends
   24. The business cycle in history
3. 2.1 The level of overall economic activity (questions)
4. Section 2.2 Aggregate demand and supply (notes)
5. Section 2.2 Aggregate demand and supply (simulations and activities)
6. 2.2 Aggregate Demand and Aggregate Supply (questions)
7. 2.3 Macroeconomic objectives (notes)
8. Low Unemployment
9. 2.3 Macroeconomic objectives (questions)
10. 2.4 Fiscal policy (notes)
11. 2.4 Fiscal policy (questions)
12. 2.5 Monetary policy (notes)
13. 2.5 Monetary Policy (questions)
14. Section 2.6 Supply-side policies (notes)
15. 2.6 Supply-side policies (questions)
16. Print View

Using index numbers

Much of the data you will come across in your course is presented in the form of index numbers and index series.

The following shows the consumer price index for two countries, Italy and Turkey. The consumer price index is a number calculated every year, which indicates how much on average consumer prices have risen since the previous year.

If we look at prices in Italy between 2000 and 2001 we can see that the consumer price index has increased from 89 to 91. The first point to note is that this DOES NOT MEAN that prices have gone up by 2%. That is not how index numbers work!

To calculate the increase in consumer prices we would need to find the percentage change between these two index numbers.

In the above example

We can say, therefore, that the prices have gone up by 2.3% over the two years.

NB The index number in 2005 for both countries is 100. This means that the index has been calculated in such a way that all prices are being compared with those that existed in 2005. 2005 is referred to as the base year. Therefore, when you use an index, it is said that you are valuing something in terms of constant prices i.e. in the case of the example, all prices are benchmarked against those that existed in 2005.