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What is macroeconomics?
Macroeconomics considers the performance of the economy as a whole. We try to understand changes in The rate of economic growth The rate of inflation Unemployment Our trade performance with other countries Macroeconomics also includes an evaluation of the relative success or failure of government economic policies
Introduction to Macroeconomics
Microeconomics examines the behavior of individual decision-making unitsbusiness firms and households. Macroeconomics deals with the economy as a whole; it examines the behavior of economic aggregates such as aggregate income, consumption, investment, and the overall level of prices. Macroeconomics deals with the functioning of the economy as a whole.
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The economy is made up of four sectors sometimes called economic agents: Households who receive payments (income) for their services (eg labour and land) and use this money to buy the output of firms (ie consumption or household spending). Firms who use land labour and capital to produce goods and services for which they pay wages rent etc (income) and receive payment (expenditure) Government (also known as the public or state sector) and International eg consumers buying overseas products (M) and Foreigners buying UK products (X)
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Business cycle
Employment & unemployment National income (GNP) Stagflation Exchange rates
Balance of payment
Economic Growth
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macroeconomic variables
Employment &unemployment is an important macroeconomic variables . The unemployment rate is the percentage of the labor force that is
Scope of Macroeconomics
1.Theory of National Income:-Macroeconomics studies the concept of national income, its different elements, methods of its measurement and social
accounting.
2.Theory of Employment:-It studies the problems of employment and unemployment. There are different factors which determine employment. They are like effective demand, aggregate demand, aggregate supply, total consumption ,total savings and total investment etc. 3.Marco Theory of distribution:-There are macro economic theories of distribution. These theories try to explain how the national output is distributed
Scope of Macroeconomics
5.Theory of International Trade:-It also studies principles determining trade among different countries. Tariff's protection and free-trade polices fall under foreign trade.
7.Theory of Business Fluctuations:-It also deals with the fluctuations in the level of employment, total expenditure, general price level.
8.Theory of Genral Price Level:-A continuous rise in the price level is called inflation. It distorts production. It increases inequalities in the distribution of income and wealth. The common man is injured by inflation. Deflation is the opposite of inflation. The general price level falls continuously. Output and employment levels fall. Macro economics provides explanation for the occurrence of inflation and deflation.
Importance of Macroeconomics
Helpful in understanding the functioning of an economy Study of national income Formulation of economic policy Study of trade cycle Changes in general price level Economic growth International comparison Economic planning Helpful in understanding Macro Economic Paradoxes
Importance of Macroeconomics
Macroeconomics is useful in several ways. Some of them are discussed under the following headings: a. To understand the working of economy:-Macroeconomics gives birds eye view of the economic world. It helps in understanding how the macroeconomic variables behave in the aggregate. Study of the national income, aggregate output, gross saving and output, national expenditure is very essential to understand the working of the economy. b. Helpful in formulation of economic policies:-Macroeconomic analysis provides a sound basis for the formulation of governments economic policy. The economic policies for the removal of poverty, employment and price stabilization must be based upon reliable statistics of the aggregate variables. c. Helpful in controlling economic fluctuations:-Economic fluctuations like trade cycle, inflation, deflation etc. need to be handled appropriately in appropriate period to correct them. This will give a finite direction to the economy. For this the knowledge of macroeconomics is essential.
Importance of Macroeconomics
d. Helpful in international comparisons:-Only macroeconomic variables like national income, total output, aggregate demand, and consumption behaviour and investment patterns of different countries can be easily compared. Macroeconomics provides the necessary information for this. e. National Income:-National income is the barometer that scales the growth of a country. It analyses the overall performances of the economy within a given period of time and allow us to compare that performance with the post. National income, basically, is an aggregate concept. Thus, macroeconomics studies about the problems of unemployment, inflation, economic instability and economic growth. It also enriches our knowledge of functioning of the whole economy by studying the behaviour of national income, output, investment, saving, and consumption.
to the fiscal entirely. For instance, savings are a private virtue but a public
vice. If total savings in the economy increases, they may initiate a depression unless they are invested. Again, if an individual depositor
withdraws his money from the bank, there is no risk. But if all depositors
simultaneously do this, there will be a run on the banks and the banking system will be affected adversely.
Economic Growth
Economic Growth is a narrower concept than economic development. It is an increase in a country's real level of national output which can be caused by an increase in the quality of resources (by education etc.), increase in the quantity of resources & improvements in technology or in another way an increase in the value of goods and services produced by every sector of the economy. Economic Growth can be measured by an increase in a country's
improvement
5. Full employment
Economic Development
Economic development is a normative concept i.e. it applies in the context of people's sense of morality (right and wrong, good and bad). The definition of economic development given by Michael Todaro is an increase in living standards, improvement in self-esteem needs and freedom from oppression as well as a greater choice. The most accurate method of measuring development is the Human Development Index which takes into account the literacy rates & life expectancy which affects productivity and could lead to Economic Growth. It also leads to the creation of more opportunities in the sectors of
level
5. It reduces social tension & thereby create congenial environment for business
are becoming more of a problem for Governments now that the pressure has
increased on them due to Global warming. Economic growth is a necessary but not sufficient condition of economic
development.
Scope:
Concerned with structural changes Growth is concerned with in the economy increases in the economy's output
Growth:
Development relates to growth of human capital indexes, a decrease in inequality figures, and structural changes that improve the general population's quality of life
Growth relates to a gradual increase in one of the components of Gross Domestic Product: consumption, government spending, investment, net exports
Economic Development Implicati on: It implies changes in income, saving and investment along with progressive changes in socioeconomic structure of country(institutional and technological changes)
Economic Growth It refers to an increase in the real output of goods and services in the country like increase the income in savings, in investment etc.
Measure ment:
Qualitative.HDI(Human Quantitative. Increase in real Development Index), gender- GDP. Shown by PPF. related index (GDI), Human poverty index (HPI), infant mortality, literacy rate etc. Brings qualitative and quantitative Brings quantitative changes in changes in the economy the economy
Effect: