MGT1114: Principles of
Macroeconomics
Module 1: Introduction
Macro Economics and
National Income
Lecture title: Introduction
to Macroeconomics
Macroeconomics- An Introduction
Compared to microeconomics, macroeconomics is
a younger branch of economics. • The terms ‘microeconomics’ and
‘macroeconomics’ were coined and used
first by a Norwegian economist, Ragnar
Frisch, in 1933 in his paper “Proposition
Until the Great Depression of the 1930s, the Problems and Impulse Problems in Dynamic
Economics”, published in “Economic Essays
subject matter of economic science was broadly in the Honour of Gustav Cassel” (London,
limited to what is now known as microeconomics. 1933).
• The prefixes ‘micro’ and ‘macro’ are Greek
words meaning ‘small’ and ‘large’,
Macroeconomics emerged as a separate branch in respectively.
1936 with the publication of John Maynard
Keynes’ revolutionary book, The General Theory
of Employment, Interest and Money.
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What is Economics?
➢Adam Smith (1723-1790): Father of Economics
➢Book: “The Nature and Causes of Wealth of Nations” in the year 1776.
➢Economics as a Study of Wealth.
➢“an enquiry into the wealth of nations”.
• Alfred Marshall (1842-1924)
• Economics as a Science of Material Welfare of Man
• “on the one side a study of wealth; and on the other; and more important side, a part of
the study of man.”
o Lionel Robbins (1898-1984)
o Economics as a Study of Allocation of Scarce Resources
o “the science which studied human behaviour as a relationship between ends and
scarce means which have alternative uses.”
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• Economics is derived from Greek words “OIKONOMICAS” = Oiko +
nomia = Household + Management
• Economics is a social science which deals with how human beings
coordinate their wants and desires, given the decision-making
mechanisms, social customs, and political realities of society.
• Why does he/ she coordinate?
1. What, and how much, to produce.
2. How to produce it.
Definition of 3. For whom to produce it.
Economics • Economics is the study of the allocation of scarce resources to meet
unlimited human wants.
• how society uses scarce resources to produce valuable goods and
services and distribute them among different individuals
• how scarce resources can be used to satisfy humans’ unlimited
wants
• making choices in the presence of scarce resources which have
alternative uses
• the science of decision-making
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Subject Matter of Economics
• It is the study of how people—individuals, households, firms, and nations—maximise their gains from their
limited resources and opportunities.
• People are classified under different categories of decision-makers
(i) Consumers—the users of all final goods and services
(ii) Firms—the producers of all goods and services and
(iii) Owners and users of resources
• The term ‘gain’ has different connotations for different sections of economic decision-makers.
(i) Consumers—it is the total utility or satisfaction they derive from the consumption of goods and services
(ii) Producers — it is production and profit that they make from the use of resources at their disposal
(iii) Resource users, especially labour —it means wage income or earning per unit of time
(iv) A nation—national output, total employment, high standard of living, and economic welfare of the
society.
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Subject Matter of Economics
• how individuals and households as consumers decide to maximise their total utility
• what to consume
• how much to consume
• how to allocate their limited income to various goods and services they consume
• how firms as producers decide to maximise the total output from the use of their limited
resources (land, labour, capital, technology, etc.)
• what to produce
• how much to produce
• how to produce
• how firms decide to maximise their total profit
• what price to charge
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Subject Matter of Economics
• Additionally, economics studies also the working mechanism of the market system and the
behaviour of the market forces—demand and supply—and how these forces determine the
price of a product.
• It studies the input-output relationship, i.e., how the production of a good or service
responds to the increase in inputs (labour and capital),
• It studies the cost-output relationship, i.e., how the cost of production responds to the
increase in production of a product.
• Besides, it analyses how the price of a product and the price of a factor of production are
determined under different market conditions.
• Likewise, resource owners supply the resources, and the producers demand the resources,
creating a demand for the factors of production.
• Economics also studies how factor prices (wages, rent, etc.) are determined.
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Microeconomics vs Macroeconomics
Microeconomics Macroeconomics
• It is concerned with • It is concerned with the
decision-making by aggregate performance
individual economic of the entire economic
agents such as firms system.
and consumers. • Aggregate demand
• Consumer & Producer and aggregate Supply
• Supply & Demand • National income &
• Price, Welfare, & Interest rate
Market • Savings & Investment,
• Money & Inflation
• Employment &
Unemployment
• Poverty, Development
& Growth
NEXT CLASS: CONCEPT
AND VARIABLES OF THANK YOU
MACROECONOMICS
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