LECTURE 1

Be Global Leaders

INTRODUCTION,
THE SCIENCE OF MACROECONOMICS
AND DATA
Prepared by
Eka Puspitawati, PhD

Department of Economics
Faculty of Economy and Bussines
Universitas Pertamina
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Student Outcomes (SO)
CPL-a. Ability to think critically and creatively
SO-a. (Kemampuan untuk berpikir kritis dan kreatif)

Ability to identify, analyze, and solve social economics problems

CPL -h.
(Kemampuan untuk mengidentifikasi, menganalisis, dan
SO-h.
memecahkan permasalahan sosial ekonomi)

Ability to apply knowledge of mathematics in economics and

CPL -i. business problems
SO-i. (Kemampuan untuk mengaplikasikan pengetahuan matematika
pada permasalahan ekonomi dan bisnis)

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Course Outcomes (CO)

Students are able to explain the basic theories of

macroeconomics particularly national income,
CPMK-1.
money and inflation, open economy,
CO-1.
unemployment, economic growth, economic
fluctuation, aggregate demand and supply.
CPMK-2. Students can integrate theories and current issues
CO-2. in macroeconomics.
CPMK-3. Students can analyse the impact of government
CO-3. policy to the macroeconomic performance

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Brief Description of the course

• This course provide basic understanding for

undergraduate students about the definition and
scope of study of macroeconomics, macroeconomic
data, national income, money and inflation, open
economy, unemployment, economic growth,
economic fluctuation, aggregate demand and
supply, and the impact of government policy to the
macroeconomic performance, whether it is on open
or closed economy

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References
Utama:
1. Mankiw, G. N. 2010. Macroeconomics. 7th Edition. Worth
Publishers, Inc., New York
2. Oktaviani, R dan T. Novianti. 2011. Teori Ekonomi Makro.
IPB Press, Bogor
Pendukung:
1. Case, Karl.E, Ray C.Fair, and Sharon E. Oester. Priciples of
Macroeconomics
2. David Romer, Advanced Macroeconomics, 4th edition,
McGraw-Hill Irwin, 2012. ISBN: 978-0-07-351137-5

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RULES OF THE COURSE

•Absence must be <20% (≤ three times) →

influence to UAS=0
•No permission for sick reason
•No handphone/ gadget active in the class →
active means absence
•You must have a note book for
macroeconomics → will be marked at 2 quiz
times

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Evaluation
Metode Bobot (%)
Tugas Tugas & Keaktifan (Assgn) 10
(Assignments) Tutorial/responsi (R) 10
Booked Note - hand writing (BN) 5
Kuis (Quiz) 15
UTS (Midterm Exam) 30
UAS (Final Exam) 30
Notes: Total 100
• Kuis 2 kali (sekali sebelum UTS, sekali sebelum UAS)
• Keaktifan dan perilaku dinilai setiap tatap muka perkuliahan

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WHAT IS MACROECONOMICS?
• Macroeconomics is the branch of economics that
studies the behavior and performance of an economy
as a whole. It focuses on the aggregate changes in the
economy
• Scope of study of Macroeconomics: unemployment,
growth rate, gross domestic product and inflation
• Explanations and Policy prescriptions
• Macroeconomics + Microeconomics = Economics
• The study of macroeconomic variables

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IMPORTANT ISSUES IN
MACROECONOMICS

• 3 major indicators of economic

performance :
- GDP and Growth
- Unemployment rate
- Inflation rate

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ECONOMIC MODELS

Math

If,

or Economics
→ Relationship

Math as illustration about human behavior

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 Be Global Leaders
ECONOMIC MODELS

Mathematics in macroeconomics:

Observation of data => simplified reality

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The example of a model of supply
and demand for rice
•Explains the factors that determine the price
of Rice and the quantity sold.
•Assumes the market is competitive
•Variables:
Q d = quantity of rice that buyers demand
Q s = quantity of rice that producers supply
P = price of rice
Y = aggregate income
Pg = price of fertilizer (an input)
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THE RICE MARKET
•The supply for rice :
Q s = S(P+, Pf-)

•The demand for rice :

Q d =D(P-, Y+)

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The market for rice: equilibrium
P
Price
of rice S

equilibrium
price
D
Q
Quantity
of rice
equilibrium
quantity

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The effects of an increase in income:
demand equation: P
Q d = D (P ,Y ) Price
of rice S

P2
P1
D2
D1
Q
Q1 Q2
Quantity
of rice

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Endogenous vs. exogenous variables:

• The values of endogenous variables

are determined in the model.
• The values of exogenous variables
are determined outside the model:
the model takes their values & behavior
as given.

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Prices: Flexible Versus Sticky

• Market clearing: an assumption that

prices are flexible and adjust to equate
supply and demand.
• In the short run, many prices are sticky.
• In models : Prices are supposed to be
sticky in the short run and flexible in the
long run.

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Gross Domestic Product (GDP) is the
market value of all final goods and services
produced within an economy in a given
period of time.

The consumer price index (CPI) measures

the level of prices.

The unemployment rate tells us the fraction

of workers who are unemployed.

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 Income, Expenditure
and the Circular Flow
There are 2 ways Total income of everyone in the economy
of viewing GDP Total expenditure on the economy’s
output of goods and services
Income $
Labor
Households Firms
Goods

Expenditure $
For the economy as a whole, income must equal expenditure.
GDP measures the flow of dollars in this economy.
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1) To compute the total value of different goods and services, the national
income accounts use market prices.
Thus, if

Rp 5000 Rp 3000

GDP = (Price of apples  Quantity of apples)

+ (Price of oranges  Quantity of oranges)
= (Rp 5 000  4) + (Rp 3 000  3)
GDP = Rp 29 000
2) Used goods are not included in the calculation of GDP.
3) The treatment of inventories depends on if the goods are stored or
if they spoil. If the goods are stored, their value is included in GDP.
If they spoil, GDP remains unchanged. When the goods are finally sold
out of inventory, they are considered used goods (and are not counted).

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4) Intermediate goods are not counted in GDP– only the value of
final goods. Reason: the value of intermediate goods is already
included in the market price. Value added of a firm equals the
value of the firm’s output less the value of the intermediate goods
the firm purchases.

5) Some goods are not sold in the marketplace and therefore don’t
have market prices. We must use their imputed value as an estimate
of their value. For example, home ownership and government services.

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The value of final goods and services measured at current prices is called nominal
GDP. It can change over time either because there is a change in the amount (real
value) of goods and services or a change in the prices of those goods and services.
Hence, nominal GDP Y = P  y, where P is the price level and y is real output– and
remember we use output and GDP interchangeably.
Real GDP or, y = YP is the value of goods and services measured using a
constant set of prices.
This distinction between real and nominal can also be applied to other monetary
values, like wages. Nominal (or money) wages can be denoted by W and
decomposed into a real value (w) and a price variable (P). Hence,
W = nominal wage = P • w
w = real wage = w/P
This conversion from nominal to real units allows us to eliminate the problems
created by having a measuring stick (dollar value) that essentially changes length
over time, as the price level changes.

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Nominal GDP = GDP at current market prices
Real GDP = GDP at Constant market prices

Data sources of GDP for Indonesia:

✓ https://www.bps.go.id/subject/169/produk-domestik-bruto--
pengeluaran-.html#subjekViewTab3
✓ https://www.bi.go.id/id/statistik/seki/terkini/riil/Contents/Default.a
spx

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 Let’s see how real GDP is computed in our apple and
orange economy.

For example, if we wanted to compare output in 2002 and output

in 2003, we would obtain base-year prices, such as 2002 prices.

Real GDP in 2002 would be:

(2002 Price of Apples  2002 Quantity of Apples) +
(2002 Price of Oranges  2002 Quantity of Oranges).
Real GDP in 2003 would be:
(2002 Price of Apples  2003 Quantity of Apples) +
(2002 Price of Oranges  2003 Quantity of Oranges).
Real GDP in 2004 would be:
(2002 Price of Apples  2004 Quantity of Apples) +
(2002 Price of Oranges  2004 Quantity of Oranges).

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 GDP Deflator = Nominal GDP
Real GDP

Nominal GDP measures the current dollar value of the output of

the economy.

Real GDP measures output valued at constant prices.

The GDP deflator, also called the implicit price deflator for GDP,
measures the price of output relative to its price in the base year. It
reflects what’s happening to the overall level of prices in the economy.

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 Y = C + I + G + NX

Total demand Investment

for domestic is composed spending by
output (GDP) of businesses and
households Net exports
or net foreign
Consumption Government demand
spending by purchases of goods
households and services

This is the called the national income accounts identity.

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To see how the alternative measures of income relate to one
another, we start with GDP and add or subtract various quantities.
To obtain gross national product (GNP), we add receipts of factor
income (wages, profit, and rent) from the rest of the world and
subtract payments of factor income to the rest of the world.

GNP = GDP+Factor Payments from Abroad -Factor Payments to

Abroad

Whereas GDP measures the total income produced domestically, GNP

measures the total income earned by nationals (residents of a nation).

To obtain net national product (NNP), we subtract the depreciation of

capital-- the amount of the economy’s stock of plants, equipment, and
residential structures that wears out during the year:
NNP = GNP - Depreciation slide 26
The Consumer Price Index (CPI) turns the prices
of many goods and services into a single index
measuring the overall level of prices.

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 Let’s see how the CPI would be computed in our
apple and orange economy.

For example, suppose that the typical consumer buys 5 apples and 2
oranges every month. Then the basket of goods consists of 5 apples
and 2 oranges, and the CPI is:

CPI= ( 5  Current Price of Apples) + (2  Current Price of Oranges)

( 5  2002 Price of Apples) + (2  2002 Price of Oranges)

In this CPI calculation, 2002 is the base year. The index tells how
much it costs to buy 5 apples and 2 oranges in the current year
relative to how much it cost to buy the same basket of fruit in 2002.

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The GDP deflator measures the prices of all goods produced, whereas
the CPI measures prices of only the goods and services bought by
consumers. Thus, an increase in the price of goods bought by firms or
the government will show up in the GDP deflator but not in the CPI.

Also, another difference is that the GDP deflator includes only those
goods and services produced domestically. Imported goods are not a
part of GDP and therefore don’t show up in the GDP deflator.

The final difference is the way the two aggregate the prices in the
economy. The CPI assigns fixed weights to the prices of different
goods, whereas the GDP deflator assigns changing weights.

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The labor force is defined as the sum of the employed an unemployed,
and the unemployment rate is defined as the percentage of the labor
force that is unemployed. The labor force participation rate is the
percentage of the adult population who are in the labor force.
Data source: SAKERNAS (Survei Angkatan Kerja Nasional)
http://microdata.bps.go.id/mikrodata/index.php/catalog/SAKERNAS

This topic will be deeply dicussed in Lecture 4

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 Ekonomi Indonesia = Laju Pertumbuhan GDP (%)

Laju pertumbuhan GDP (%)

5,35
5,3
5,25
5,2
5,15
5,1
5,05
5
4,95
4,9
4,85
TwI-2017 TwII-2017 TwIII-2017 TwIV-2017 TwI-2018 TwII-2018 Asumsi
RAPBN-2019

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 Tugas Individu dikumpulkan minggu depan

• Cari dua data makroekonomi (2 variabel) Indonesia

minimal 5 tahun ke belakang
• Buat data tersebut dalam grafik dan intepretasikan!
Data tidak boleh copy-paste pic (gambar) yang telah
jadi
• Tugas Individu ini tidak boleh sama antara satu
dengan yang lain

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The End

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