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Chapter-1. Introduction

This document provides an introduction to macroeconomics. It defines macroeconomics as the study of the economic behavior of a country as a whole and the policy measures used by the government to influence it. Macroeconomics examines aggregate measures like total output, national income, unemployment, and inflation rates. It studies the economy in both the short-run business cycle and long-run economic growth. The central themes are business cycles and economic growth. The objectives of macroeconomics are high output, high employment, and stable prices. Monetary and fiscal policy are the main tools used to achieve these objectives.

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563 views9 pages

Chapter-1. Introduction

This document provides an introduction to macroeconomics. It defines macroeconomics as the study of the economic behavior of a country as a whole and the policy measures used by the government to influence it. Macroeconomics examines aggregate measures like total output, national income, unemployment, and inflation rates. It studies the economy in both the short-run business cycle and long-run economic growth. The central themes are business cycles and economic growth. The objectives of macroeconomics are high output, high employment, and stable prices. Monetary and fiscal policy are the main tools used to achieve these objectives.

Uploaded by

Nishan Shetty
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MACROECONOMICS

Chapter 1
Introduction to Macroeconomics
What Is Macroeconomics?

 Macroeconomics is the study of the economic behavior of


the country as a whole and the policy measures that the
government uses to influence it.
 It examines the aggregate behavior of the economy (that
is, how the actions of all the individuals and firms in the
economy interact to produce a particular level of economic
performance as a whole).
 Utilizes aggregate measures including total output,
national income, rates of unemployment and inflation,
and exchange rates
 Examines the economy in the short and long run
Short run: movements in the business cycle
Long run: economic growth
Macroeconomics Versus Microeconomics
Basis Microeconomics Macroeconomics

Units of study Studies individual units Deals with aggregates of individual


units

Objective Maximize utility Full employment, price stability ,


economic growth & favorable BOPs

Basis of study Price mechanism (D&S) National income, output &


employment (AD & AS)

Equilibrium Partial equilibrium analysis General equilibrium analysis


analysis

Equilibrium Particular period of time Over the period of time


condition (static analysis) (dynamic analysis)
Central Themes of Macroeconomics
• Business cycle
- short run fluctuations in output, employment,
financial conditions & prices
• Economic growth
- longer term trends in output & standard of living
Rise of Macroeconomics
• Great Depression in 1930s
• Economic crisis in US & industrialized nations
• J.M.Keynes & his economic advocacies
• II world war
• fear of another round of depression in US
• US congress proclaimed macroeconomics in 1946
Key Concepts/Issues of Macroeconomics
1. Why do output & employment sometimes fall, and how
can unemployment be reduced?

2. What are the sources of price inflation, & how can it be


kept under control?

3. How can a nation increase its rate of economic growth?


Objectives/ Goals of Macroeconomics

 Output : high level & rapid growth of output

 Employment: high level of employment with low level of


involuntary unemployment

 Stable prices: free from fluctuations & volatilities.


Instruments/Tools of Macroeconomic Policies

 Monetary policy
 Fiscal Policy
Measuring Economic Success
• Increasing output – measured in terms of:

i) trends in GDP
ii) agricultural growth

iii) industrial growth


• Price stability- measured in terms of low & stable inflation rate
• High employment & low unemployment

• International linkages
i) decreasing trade deficit
ii) increasing Forex assets
iii) low external debt
iv) exchange rate

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