Intrduction to macroeconomics
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Macroeconomics is the study of the economy as a whole, including factors such as national income, output, employment, inflation, and trade balances. It focuses on aggregate supply and demand and macroeconomic policies. Microeconomics examines individual decision-making and market interactions, while macroeconomics analyzes economy-wide phenomena. Models are used in macroeconomics to simplify complex realities, make testable predictions, and inform policies to improve performance regarding goals like growth, employment, and stability.
Intrduction to macroeconomics
- 3. Microeconomics is the study of how households and firms make decisions and how these decision makers interact in the broader marketplace. In microeconomics, an individual chooses to maximize his or her utility subject to his or her budget constraint. Macroeconomic events arise from the interaction of many individuals trying to maximize their own welfare. Because aggregate variables are the sum of the variables describing individuals’ decisions, the study of macroeconomics is based on microeconomic foundations.
- 4. What is Macroeconomics? Microeconomics v/s macroeconomics Macroeconomics is concerned with aggregates and average of the entire economy, such as national income, aggregate output, total employment, total consumption, savings and investments, aggregate demand, aggregate supply, general level of prices etc. In macroeconomics we study how these aggregates and averages of the economy as a whole are determined and what
- 5. Macroeconomics is concerned with the behavior of the economy as whole…with booms and recessions, with economy’s total output of goods and services, the growth of output, the rate of inflation and unemployment, the balance of payment, and exchange rate Macroeconomics focuses on the economic behavior and policies that affects consumption and investments, trade balance, determinants of wages and prices, monetary and fiscal policies, the money stock, budget, interest rate and national debt
- 6. Important issues in macroeconomics Why does the cost of living keep rising? Why are millions of people unemployed, even when the economy is booming? What causes recessions? Can the government do anything to combat recessions? Should it? What is the government budget deficit? How does it affect the economy? Why are so many countries poor? What policies might help them grow out of poverty? Macroeconomics, the study of the economy as a whole, addresses many topical issues:
- 7. Economic models …are simplified versions of a more complex reality irrelevant details are stripped away …are used to Make testable predictions that can, when proven, … … explain the economy’s behavior devise policies to improve economic performance
- 8. Economists use models to understand what goes on in the economy. Here are two important points about models: endogenous variables and exogenous variables. Endogenous variables are those which the model tries to explain. Exogenous variables are those variables that a model takes as given. In short, endogenous are variables within a model, and exogenous are the variables outside the model. Price Demand Q * P Supply Quantity * This is the most famous economic model. It describes the ubiquitous relationship between buyers and sellers in the market. The point of intersection is called an equilibrium.
- 9. Macroeconomic Analysis Helps in understanding the complicated economic system Formation and understanding of national economic policy Tool for the solution of economic problems related to output, employment, and national income Individual are ignored Individual differences are overlooked
- 10. Issues and Problems in Economics What to produce Allocation of resources How to produce For whom to produce Problems of efficiency and growth
- 11. Goals of Macroeconomic Policy Full employment High standard of living Price stability Reduction of economic inequality and removal of poverty Rapid economic growth External balance v/s overall balance in economic relations with the rest of the world
- 12. Objectives of Macroeconomic Policies High and rising per capita incomes Avoiding excessively high inflation Efficient use of human and non-human resources with minimum possible unemployment of labour Poverty removal and removal of extreme inequalities of income Avoidance of persistent imbalance in foreign trade and excessive resorts to foreign capital
- 13. Review Questions What is macroeconomic? What is the difference between microeconomics and macroeconomics? What are the major issues in macroeconomic analysis? Why do we need to study macroeconomics? What is macroeconomics model? Why do we use macroeconomic models? What are the objectives of macroeconomic policies?
- 14. Campus Overview 907/A Uvarshad, Gandhinagar Highway, Ahmedabad – 382422. Ahmedabad Kolkata Infinity Benchmark, 10th Floor, Plot G1, Block EP & GP, Sector V, Salt-Lake, Kolkata – 700091. Mumbai Goldline Business Centre Linkway Estate, Next to Chincholi Fire Brigade, Malad (West), Mumbai – 400 064.
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