Intrduction to macroeconomics
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Transcript of Intrduction to macroeconomics
INTRODUCTION TO MACROECONOMICS
Microeconomics is the study of how households and firmsmake decisions and how these decision makers interact in the
broader marketplace. In microeconomics, an individual chooses tomaximize his or her utility subject to his or her budget constraint.
Macroeconomic events arise from the interaction of manyindividuals trying to maximize their own welfare. Because
aggregate variables are the sum of the variables describingindividuals’ decisions, the study of macroeconomics
is based on microeconomic foundations.
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 causes fluctuations in them
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
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:
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
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.
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
Issues and Problems in Economics
What to produce Allocation of resources How to produce For whom to produce Problems of efficiency and
growth
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
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
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?
Campus Overview
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Ahmedabad
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Mumbai
Goldline Business Centre Linkway Estate, Next to Chincholi Fire Brigade, Malad (West), Mumbai – 400 064.
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