Company LOGO Introduction to Macroeconomics Andri Wijanarko,SE,ME [email protected].

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Introduction to Macroeconomics

Andri Wijanarko,SE,[email protected]

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Definition of Economics

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Definition of Economics #1

Paul A. Samuelson

Studies how the prices of labor, capital, and land are set in the economy, and how these price are use to allocate resources.

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Explores the behavior of the financial markets and analyzed how they allocate capital to the rest of the economy

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Analyzes the consequences of government regulation on market efficiency

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Examines the distribution of income, and suggest ways that the poor can be helped without harming the performance of economy

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Looks at the impact of government spending taxes, and budget deficits on growth

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Studies the upswings and downturns in unemployment and production that make up the bussiness cycle, and develops government policies for improving economic growth

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Examines the patterns of trade among nations and analyzes the impact of trade barrier

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Looks at growth in developing countries, and proposes ways to encourage the efficient use of resources

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Definition of Economics - Conclusion

Economics is the study of how societies use scarse resources to produce valuable commodities and distribute them among different people

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Definition of Economics - Keywords

Keywords of Economics : a) studyb) societies use scarse resources c) produce valuable commoditiesd) distribute e) different people

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Exponent of Modern Economics

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Exponent of Modern Economics #1

Adam SmithAn Inquiry into the Natures and Causes of the Wealth of Nations (1776)

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Adam Smith• How individual prices are

set• How prices of land, labor

and capital are set• Inquired into the strengths

and weakness of the market mechanism

Founder of Microeconomics

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John Maynard KeynesGeneral Theory of Employment, Interest and Money (1936)

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Keynes• Theory of what causes

unemployment and economic downturns.

• How Investment and consumption are determined

• How central bank manage money and interest rates

• Why some nations thrive while others stagnate

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Great Depression 1930s

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Great Depression #1

It was the longest, most widespread, and deepest depression of the 20th century.

In the 21st century, the Great Depression is commonly used as an example of how far the world's economy can decline

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Great Depression #2

The Great Depression had devastating effects in virtually every country, rich and poor.

Personal income tax revenue, profits and prices dropped, while international trade plunged by more than 50%.

Unemployment in the U.S. rose to 25%, and in some countries rose as high as 33%

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Great Depression #3

The depression originated in the U.S., starting with the fall in stock prices that began around September 4, 1929 and became worldwide news with the stock market crash of October 29, 1929 (known as Black Tuesday). From there, it quickly spread to almost every country in the world.

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Great Depression #4

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Great Depression #5

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Great Depression #6

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Root of Macroeconomics

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Root of Macroeconomics #1

Microeconomics examines the behavior of individual decision-making units—business firms and households.

Macroeconomics deals with the economy as a whole; it examines the behavior of economic aggregates such as aggregate income, consumption, investment, and the overall level of prices.

Aggregate behavior refers to the behavior of all households and firms together.

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Macroeconomists often reflect on the microeconomic principles underlying macroeconomic analysis, or the microeconomic foundations of macroeconomics.

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Classical economists applied microeconomic models, or “market clearing” models, to economy-wide problems.

However, simple classical models failed to explain the prolonged existence of high unemployment during the Great Depression. This provided the impetus for the development of macroeconomics.

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Three of the major concerns of macroeconomics are: Inflation Output growth Unemployment

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Keynes believed governments could intervene in the economy and affect the level of output and employment.

During periods of low private demand, the government can stimulate aggregate demand to lift the economy out of recession.

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There are three kinds of policy that the government has used to influence the macroeconomy: Fiscal policy Monetary policy Growth or supply-side policies

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Fiscal policy refers to government policies concerning taxes and spending.

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Monetary policy consists of tools used by the Federal Reserve to control the quantity of money in the economy.

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Growth policies are government policies that focus on stimulating aggregate supply instead of aggregate demand.

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Components of Macroeconomics

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Components of Macroeconomics #1

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Transfer payments are payments made by the government to people who do not supply goods, services, or labor in exchange for these payments.

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Households, firms, the government, and the rest of the world all interact in three different market arenas:

1. Goods-and-services market

2. Labor market

3. Money (financial) market

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Households and the government purchase goods and services (demand) from firms in the goods-and services market, and firms supply to the goods and services market.

In the labor market, firms and government purchase (demand) labor from households (supply).

The total supply of labor in the economy depends on the sum of decisions made by households.

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In the money market—sometimes called the financial market—households purchase stocks and bonds from firms. Households supply funds to this market in the

expectation of earning income, and also demand (borrow) funds from this market.

Firms, government, and the rest of the world also engage in borrowing and lending, coordinated by financial institutions.

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See you next time...

References :

a) Economics (Samuelson & Nordhaus)

b) Economics (Case, Fair)

c) Teaching material adopted from Fernando & Yvone Quijano

Company LOGO Introduction to Macroeconomics Andri Wijanarko,SE,ME [email protected].

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