The Nature of Economics : Macroeconomics of Indonesia

Marsya Paramita C. (335916)

Prabaning Tyas (335925)

Cornelia Ayu Purwandari (330778)

M. Ibnu Thorikul Aziz (331818)

Iman Handi Pratama (330589)

I Wayan Arya Swarnata (330694)

What is economics ? – Why do we study it ?

Resources are scarce Needs and Wants and limitless People need to allocate their scare resource Economics = study of how people allocate their resources

Economic Models

As a scientist, economist use models to explain economic Models usually consisted of diagram and equation Models are not precisely same as the real world

Example of Macroeconomic Model

Positive and Normative Analysis

Positive analysis : describe the world as it is Positive analysis will be in the theories part of

presentation Normative : prescribe the world how it should be Normative analysis will be in the discussion part of

presentation

Microeconomics and Macroeconomics

Micro : Individual analysis & behavior

Macro : Aggregat analysis & behavior

The Development of Macroeconomics Theory

The Great Depression (1929-1933) was happened throughout Europe and North America.

There was no macro-micro dichotomy in economics.

The Development of Macroeconomics Theory

John Maynard Keynes wrote a book titled “The

General Theory of Employment, Interest,

and Money” which is published in 1936.

Critics

Classical Economics: Only Aggregate Supply (AS) that influences the national income.

Keynes: Aggregate Demand (AD) is also responsible for the low income and the high rate of unemployment.

Critics

Classical Economics: Believe totally in market mechanism without any intervention.

Keynes: The government can intervene to stimulate the Aggregate Demand (AD) to lift the country out of recession.

Changes

Those Keynes’ thoughts brought some radical

changes in economics:

1. The global aspects and the aggregates aspect of economics were seen as more important.

2. The government’s roles were seen to be more needed.

Macroeconomics Theories and Issues

Macroeconomics Theories and Issues consists of :

1. Inflation

2. Unemployment

3. Economic Growth

http://www.economicshelp.org

1. INFLATION

What is inflation?

Inflation is a rise in the general level of prices

of goods and services in an economy over a period of time

http://www.economicshelp.org

Types of Inflation by David A. Mayer

There are two primary types of inflation by its causes :

Demand-pull inflation Save than to spendThe public or foreign

sector reinforces itSpread across borders

as wellBecome hyperinflation

Cost-push Inflation

Price of inputs increases Stagflation Decreases in GDP wage-price spiral

http://www.economicshelp.org

Simple diagram showing demand pull inflation

http://www.economicshelp.org

Simple Diagram showing cost push inflation

http://www.economicshelp.org

INDONESIA INFLATION RATE

2. Unemployment

What is unemployment ?

Unemployment is defined as a situation where someone of working age is not able to get a job but would like to be in full time employment

http://www.economicshelp.org

Types of Unemployment Demand Deficient Unemployment Structural Unemployment Real Wage Unemployment Frictional unemployment Voluntary Unemployment Seasonal Unemployment Disguised / Hidden unemployment Natural Rate of Unemployment Under Employment

Unemployment Rate in Indonesia decreased to 6.14 percent in August of 2012 from 6.32 percent in February of 2012.

Historically, from 1982 until 2012, Indonesia Unemployment Rate averaged 6.18 Percent reaching an all time high of 11.24 Percent in August of 2005 and a record low of 2 Percent in December of 1983.

In Indonesia, the unemployment rate measures the number of people actively looking for a job as a percentage of the labour force.

This page includes a chart with historical data for Indonesia Unemployment Rate.

Indonesia Unemployment Rate

Unemployment Issue

Philippines tops neighboring countries in unemployment , posted by bworldonline.com

The total number of unemployed persons in the country reached 2.9 million in January 2012 or 7.2% of the 40.3 million Filipinos in the labor force

economic growth in the Philippines is much slower compared with the other six countries

The Philippine economy grew 3.9% last year, weaker than the GDP growth rates of Indonesia (6.5%), Malaysia (5.1%), Singapore (4.8%), China (9.2%) and South Korea (6.1%), except Thailand which expanded by only 0.1% due to floods that dragged down its economy

Indonesia reported a 6.6% unemployment rate. The other five Asian countries reported fairly low unemployment rates: Malaysia, 3.1%; Singapore, 2.0%; Thailand, 0.4%; China, 4.1%; and South Korea, 3.7%.

This suggests that joblessness is more severe [in the Philippines] than other countries in Asia

Economic Growth

Economic growth is best defined as a long-term expansion of the productive potential of the economy

Trend growth is the long term non-inflationary increase in output (GDP) caused by an increase in productive capacity

refers to the smooth path of long run national output

Growth occurs because of an increase in the quantity and/or quality of factor resources.

Innovation is a major determinant of growth

Growth rates for OECD countries 1990-2006   Average annual growth   Average annual

growth rate from 1990-2006 (%) rate from 1990-

2006 (%)Ireland 6.7 Mexico 3.0Korea 5.4 United Kingdom 2.7Slovak Republic 4.7 Finland 2.7Poland 4.5 Total OECD 2.7Turkey 4.3 Sweden 2.4Luxembourg 4.2 Denmark 2.3Hungary 3.8 Netherlands 2.2Australia 3.6 Austria 2.2Iceland 3.4 Belgium 2.0New Zealand 3.3 Portugal 1.9United States 3.3 France 1.9Canada 3.2 Euro area 1.9Norway 3.1 Germany 1.4Czech Republic 3.1 Japan 1.3Greece 3.0 Italy 1.3Spain 3.0    

Source: OECD World Economic Outlook June 2006, data for 2006 is a forecast

Economic Growth Issue of Indonesia

Posted by Jakarta Globe.com

Europe Problems Hit Indonesia’s Economic Growth Forecast

President Susilo Bambang Yudhoyono aired optimism that the 6.7 percent target would be met this year

Bank Indonesia cut its 2012 economic growth forecast to 6.3 percent from its original forecast of 6.7 percent.

Macroeconomics IssuesNational Income & International Trade

What is national income ?

Total value of country’s final output of all new goods and services produced in certain period

Measure of a nation’s economic productivity

NATIONAL INCOME

Level of economic performance

Rate of economic growth

Ease in planning

National Income’s Objectives

Gross Domestic Product (GDP)

GDP = Consumption + Investment + Government Spending + Net Export

GDP = Wages + Interest + Rent +Profit

The Accounts of National Income

Gross National Product (GNP)

Net National Product (NNP)

National Income (NI)

Personal Income (PI)

Disposable Income (DI)

The Accounts of National Income(Coun’t)

Rank

Country 2011 2010 2009 2008

1 United States 15075.68 14498.93 13973.65 14291.55

2 China 7298.15 5930.39 4990.53 4519.95

3 Japan 5866.54 5488.55 5035.14 4849.19

4 Germany 3607.36 3312.19 3307.2 3640.73

5 France 2778.09 2570.59 2626.54 2845.12

6 Brazil 2492.91 2142.93 1622.31 1650.39

7United Kingdom 2431.31 2267.48 2193.18 2670.4

8 Italy 2198.73 2060.89 2116.63 2318.16

9 Russia 1850.4 1487.29 1222.69 1660.85

10 India 1826.81 1630.47 1266.25 1262.52

16 Indonesia 846.45 708.37 538.76 510.31

GDP across Countries(Billion US$) Source : World Bank, available at www.knoema.com

GDP in Indonesia

INDONESIA ECONOMIC OVERVIEWLooking Forward for Economic Development in 2013

OVERVIEW

GDP growth for 2012 is 6.3% (Asian Development Bank) The country still faces serious challenges of improving its

infrastructure and regulatory environment investment should contribute to strengthening and

deepening the country's industrial structure The new administration of the President YUDHOYONO,

introduced new reforms which will contribute to a less corrupted economy decrease unemployment and infrastructure development.

SO WHAT’S DIFFERENCES BETWEEN GDP AND GNP?

Gross Domestic Product is the value produced within a country’s borders, whereas the Gross national Income is the value produced by all the citizens.

GDP is said to be the measure of a country’s overall economic output. The GNI is the total value that is produced within a country, which comprises of the Gross Domestic Product along with the income obtained from other countries (dividends, interests).

Gross Domestic Product helps to show the strength of a country’s local income. On the other hand, Gross National Income helps to show the economic strength of the citizens of a country.

GNI is based on ownership, and GDP is based on location.

SO WHAT’S DIFFERENCES BETWEEN GDP AND GNP?

REAL CASE : INDONESIA’s GDP and GNP from 2008 to February 2013

INDONESIA’S GDP GROWTH SLOWS IN THE FOURTH QUARTER OF 2012

REAL CASE : INDONESIA’s GDP and GNP from 2008 to February 2013

INDONESIA’S GROSS NATIONAL PRODUCT

Thank You,