Macroeconomics
- 2. Introduction to Macroeconomics • Macroeconomics is an analysis of: a country's economic structure and performance & the government's policies in affecting its economic conditions. • Economists are interested to know the factors that contribute towards a country's economic growth because if the economy progresses, it will provide more job opportunities, goods and services and eventually raise the people’s standard of living.
- 3. Defining Macroeconomics The term macro-economics applies to: • “The study of relations between broad economic aggregates (deals with a holistic approach of the economy by dealing with various aggregates) such as: total employment, the national product or income, the general price level of the economy etc.” • Therefore, the macroeconomics is also known as “aggregate economics”. • Macroeconomics: the study of the economy as a whole. • Macroeconomics deals with the whole economic system like national income, total savings and investment, total employment, total demand, total supply, general price level etc
- 4. Importance Of Macroeconomics • It helps to understand working of the whole economy It provides rich information regarding the working of the economy. It helps us to estimate the economic variables relating to the: total income, total output, total employment etc. It analyses the working of the economy. • It studies and analyzes growth and development in an economy. It helps to achieve the goal of economic growth, higher level of GDP and higher level of employment. It analyses the forces which determine economic growth of a country and explains how to reach the highest state of economic growth and sustain it.
- 5. • It helps in formulation of economic policies Macroeconomics is highly useful for understanding the various economic policies of a country. Especially it is useful for studying the severe problems of developing economies like unemployment, over population, scarcity of goods, low output, hyperinflation etc.
- 6. Objectives Of Macroeconomics Achieving Full Employment • This does not mean that there will be no unemployment at all or that the rate of unemployment will be zero in a country. • Basically, economists agree that there can still be unemployment although the economy is at a level where it has achieved full employment, meaning that those who are able and willing to have a job can get one. Price Stability • Generally, price stability means there are no changes in general price levels. • This also means that the prices of some goods and services may increase, while some other prices may drop at the same time. When prices remain largely stable, there is no rapid inflation or deflation. Good Economic Growth • Achieving good economic growth is also one of the aims of macroeconomics. • This would mean there is an increase in the real per capita income from year to year.
- 9. • Inflation arises when the average price level in the economy consistently and persistently increases. In other words, prices generally rise from month to month and year to year. With inflation the economy is not attaining the stability goal. • Inflation is a problem because: – The purchasing power of financial assets such as money declines, which reduces financial wealth and lowers living standards. – Greater uncertainty surrounds long-run planning, especially the purchase of durable goods and capital goods. – Income and wealth can be haphazardly redistributed among sectors of the economy and among resource owners.
- 11. • While attention is usually focused on the unemployment of labor, any of the four factors of production can suffer unemployment. • For example, The Wacky Willy Company might be operating one of its Stuffed Amigos factories at half capacity or Herb Haberstone might leave a section of his farmland uncultivated. • Unemployment is a problem because: – Less output is produced and thus the economy is less able to address the scarcity problem. – The owners of unemployed resources receive less income and thus have lower living standards.
- 14. • Contraction: The contraction phase of a business cycle is characterized by a general decline in economic activity. – Aggregate demand is less, meaning less output is produced, & – Thus fewer resources are employed. For this reason, unemployment tends to be a key problem. However, because markets are more likely to have surpluses than shortages, inflation tends to be less of a problem. • Expansion: The expansion phase of a business cycle is characterized by a general rise in economic activity. – Aggregate demand is higher, production is greater, and – More resources are employed. Demand for production often outpaces the ability to supply the production. Under these circumstances, because markets are more likely to have shortages than surpluses, inflation tends to be the primary problem. However, with robust production and jobs aplenty, unemployment tends to be less of a problem. (unemployment also happens when the economic situation is good).