Introduction to macroeconomics
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This document provides an introduction to macroeconomics, which studies the overall performance of an economy. It discusses three major topics: factors influencing economic activity levels; the level of efficiency achieved; and government policies to achieve desired activity and efficiency levels. Macroeconomics addresses problems like unemployment, inflation, and slow growth, as well as objectives like full employment, low inflation, steady growth, and equitable income distribution. It also contrasts classical and Keynesian views on achieving full employment, and outlines fiscal, monetary, and direct policy interventions available to governments.
Introduction to macroeconomics
- 2. Macroeconomic Theory The branch of economics that studies the overall performance of the economy such as inflation, unemployment and economic growth 2
- 3. Macroeconomic Theory Discusses three major topics: 1. Factors that influence the level of economic activities, 3. The level of efficiency achieved by the economy, and 4. The government policies to achieve the desired level of economic activities and efficiency 3
- 4. Macroeconomic Problems: 1. Unemployment 2. Inflation 3. Slow and unbalanced economic growth and development 4. Unhealthy balance of payments position 5. Inefficient use of economic resources 6. Inequitable distribution of income (poverty) Etc…. 4
- 5. Macroeconomic Objectives: 1. Full employment without inflation 2. Low inflation with high employment 3. Steady and balanced economic growth and development 4. Healthy balance of payments position 5. Efficient use of economic resources 6. Equitable distribution of income (eradication of poverty) Etc…. 5
- 6. Classical vs. Keynesian (view on full employment state of the economy) • Full employment is a • Full employment is not a natural state (because natural state (because supply creates demand – demand creates supply) Say’s Law) • Prices and wage rates are • If a disequilibrium not flexible downwards, situation appears, the therefore full employment prices and wages will is not automatically change and the full restored employment is restored • Government intervention • Government intervention is crucial is not required 6
- 7. Government Policies • Fiscal Policy – any measures that involve changing government expenditures and taxation • Monetary Policy – any measures that involve changing the level of money supply and interest rates • Direct Policy Interventions – any measures directly targeting at the source of the problems 7