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2 AE12 Introduction To Macroeconomics

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30 views21 pages

2 AE12 Introduction To Macroeconomics

Uploaded by

JACQUELYN PABLITO
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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AE12 - Economic Development

INTRO TO MACROECONOMICS
Rizal Technological University
MACROECONOMICS
MACROECONOMICS
MACROECONOMICS

The Business Cycle


MACROECONOMICS

Ragnar Frisch, Ph.D. (1895-1973)


He was a pioneer of econometrics—the application of
mathematical models and statistical techniques to economic
data—and coined this and many other economics terms.

He is likely the first person to have referred to the study


of individual firms and industries as “microeconomics.”
Moreover, he referred to the study of the aggregate economy
as “macroeconomics.”
MACROECONOMICS

John Maynard Keynes (1883-1946)

A professor in economics at Cambridge University, who


advocated for government intervention in the economy. He is
regarded as the founder of Keynesian economics.

He argued that government should play an active role


in stimulating the economy in a recession by
MACROECONOMICS

increasing spending and lowering taxes. Even if


governments go into a deficit because of increased spending,
he believed that doing so can create more employment
opportunities and improve buying power, which can improve
the economy.

The word ‘Macro’ is derived from the Greek word ‘Makros’


meaning ‘large’. Hence, Macro Economics is the study of the
economy as a whole.

Macroeconomics is also known as the IncomeTheory.


MACROECONOMICS

Macroeconomics focuses on determinants of total national


income, deals with aggregates such as aggregate
consumption and investment, and looks at overall level of
prices instead of individual prices (Case, Fair, & Oster).
3 MACROECONOMIC
CONCERN

The three major concern of macroeconomics are:

1
3 2
Output Growth Unemployment

Inflation and Deflation

Government and policymakers would like to have (1) high


output growth, (2) low unemployment,and (3) low
inflation.

*These goals may conflict with one another.

1
Output Growth
The main measure of how an economy is doing is
aggregate output – the total quantity of good and
3 MACROECONOMIC
CONCERN

services produced in the economy inagivenperiod.


(Usuallyaffectsstandardsoflivingand unemployment).

Output and
Output and employment fall
employment grow
Passed a through is a
sign of an economy
growing, but output is
still low

Passed a peak, an economy is


contracting but output is still
high
3 MACROECONOMIC
CONCERN

2
Unemployment
Unemployment rate (or the percentage of the labor
force that is unemployed) – is a key indicator of the
economy’s health because unemployment rate is
usually related to the economy’s aggregate
output.

Why is there unemployment at all?

Why do labor markets not clear when other markets do, or is


it labor markets are clearing and the unemployment data are
reflecting something different?
3 MACROECONOMIC
CONCERN

3
Inflation and Deflation

Inflation is an increase in the overall price level. Keeping


inflation low has been a goal of government policy.
3 MACROECONOMIC
CONCERN
COMPONENTS OF MACROECONOMY
1,2 PrivateSector 4
PublicSector
ForeignSector

2 1

3
4
MARKET ARENAS OF MACROECONOMICS
3 Market Arenas of Macroeconomics

1
Goods and Services Market
 Households and government purchase goods and
services here. Firms also purchase goods and services
with each other.

2 3
Labor Market Money Market
 Firms and government purchase labor from
household.

 Sometime called the Financial Market, is where


households purchase stocks and bonds from
firms and government.
THE ROLE OF GOVERNMENT IN THE
MACROECONOMY

1 Fiscal Policy
 The fancy name given to the government
spending and taxation policies, and
whether what’s coming in
matches what’s going out
 These policies are used by governments
when they want to change overall demand
or redistribute income within the economy.
 These can be neutral, contractionary or
expansionary: keep a balanced budget,
spend less to reduce deficits, or spend more
to boost activity.

Contractionary policies require raising taxation or cutting


budgets. Not only does it reduce deficits, but it can rein in
inflation

Expansionary policies are the opposite. Often the aim is


to reduce unemployment by lowering taxes or increasing
government spending.

THE ROLE OF GOVERNMENT IN THE


MACROECONOMY

2 Monetary Policy
 Policies that control the supply and cost of
money.
 These policies tend to be independent of
central government.
 Management of money supply is seen as the
most important way to prevent high inflation
and ensure stable long-term growth.
 These can be neutral, contractionary or
expansionary. But rather than managing
budgets, the aim is to control inflation.

Contractionary policies aim to reduce inflation by limiting


the money supply and reducing demand.

Expansionary policies aim to boost economic activity by


doing the opposite but at the risk of raising inflation.

*** Milton Friedman advocated that governments prioritize


monetary over fiscal policies.This position was known as
“monetarism.”

Leadership is not just about making decisions, also not


knowing it all; it's about understanding the economic
forces (situations) that shape our world and using that
knowledge to drive positive change.
Economists are not the leaders who are followed; we are
the plumbers who adjust the levers, shaping situations in
the hope of driving meaningful change

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