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Introduction

Yes it is macroeconomics introduction

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24 views27 pages

Introduction

Yes it is macroeconomics introduction

Uploaded by

ambar.g2026
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MACROECONOMICS

Macroeconomics
and Business
Environment
What is Macroeconomics
Macroeconomics is the study of the behavior of the
economy as a whole. It examines the forces that affect
firms, consumers, and workers in the aggregate
Why is it important?
Micro and Macro
Macroeconomics Microeconomics
big-picture macroeconomics, which is Little-picture microeconomics is
concerned with how the overall economy concerned with how supply and demand
works interact in individual markets for goods
and services
the subject is typically a nation—how all object of analysis is a single market—for
markets interact to generate big example, whether price rises in the
phenomena that economists automobile or oil industries are driven
call aggregate variables by supply and demand changes.
Macroeconomics is the study of the It contrasts with microeconomics ,
behaviour of the economy as a
which studies individual prices,
whole. It examines the forces that
affect firms, consumers, and workers quantities, and
in the aggregate
markets.
• Assume you are heading the international division of a company.

• Your company wants to invest in foreign countries, and you are


responsible for selecting an appropriate country for establishing a
manufacturing plant.

• How would you choose a country for investment?


THE GOALS OF
1. Rapid economic growth
MACROECONOMIC
2.
POLICY
Full employment – full utilization of human and non-human
resources
3. Price stability
4. Improve living standards
5. Reduction of economic inequality and removal of poverty
6. External sector balance and stability in exchange rate
1.Rapid economic
growth
The ultimate objective of economic activity is to provide the goods and
services that the population desires.
What could be more important for an economy than to produce ample
shelter, food, education, and recreation for its people?
The most comprehensive measure of the total output in an economy is
the gross domestic product (GDP).
Increase in GDP of the economy is called ECONOMIC GROWTH
Full employment.
•situation where everyone willing to work at the going wage rate is
able to get a job.

•Of all the macroeconomic indicators, employment and unemployment


are most directly felt by individuals.
•People want to be able to get high-paying jobs without searching or
waiting too long, and they want to have job security and good benefits.
.
Price
Stability.
This is defined as a low and stable inflation rate.
To track prices, government statisticians construct price indexes, or
measures of the overall price level.
Economists measure price stability by looking at inflation, or the rate of
inflation. The inflation rate is the percentage change in the overall level
of prices from one year to the next.
A deflation occurs when prices decline
Price
Stability
Price stability is important because a smoothly functioning market
system requires
that prices accurately convey information about relative scarcities
Improve standard of living of
people
Astandard of living generally refers to wealth, comfort, material goods
and necessities of certain classes in certain areas—or more objective
characteristics.
Improving the standard of living of people is a major objective of any
macroeconomic
policy
Reduction of economic
inequality and removal of
poverty
Need to reduce Inequalities in wealth and income
distribution Need to uplift people from poverty
External sector balance and
stability in exchange rate
Favourable Balance of Payment Position
The balance of payments (BOP) is a statement of all transactions made
between entities in one country and the rest of the world over a defined
period of time, such as a quarter or a year.

Stability in exchange rate


Macroeconomic
tools
Fiscal Policy
Monetary
Policy
Fiscal
Policy
Fiscal policy denotes the use of taxes and government
expenditures. Government expenditures come in two distinct
forms.

First there are government purchases. These comprise spending on goods


and services—purchases of tanks, construction of roads, salaries for judges,
and so forth.
In addition, there are government transfer payments, which increase the
incomes of targeted groups such as the elderly or the unemployed.
Fiscal
Policy
The other part of fiscal policy, taxation, affects the overall economy in two
ways. To begin with, taxes affect people’s incomes
In addition, taxes affect the prices of goods and factors of production and
thereby affect incentives and behaviour.
Monetary
Policy
The second major instrument of macroeconomic policy is monetary policy,
which the central bank of nation conducts through managing the nation’s
money, credit, and banking system.

The central bank is a key macroeconomic institution for every country.


Monetary
Policy
Monetary policy, conducted by the central bank, determines short-run
interest rates.
It thereby affects credit conditions, including asset prices such as stock
and bond prices and exchange rates.
Changes in interest rates, along with other financial conditions, affect
spending in
sectors such as business investment, housing, and foreign trade.
Monetary policy has an important effect on both actual GDP and potential
GDP.
Key
concepts
Flow and Stock

Flow: A flow is a quantity which is measured with reference to a period of time.


Ex. Income

Stock: A stock is a quantity which is measurable at a particular point of time.

Ex. Wealth.
CIRCULAR FLOW OF
ECONOMIC ACTIVITY
Two sectors of the economy

•Household

•Firms
Household
Households are consumers. They may be single-individuals or group of
consumers taking a joint decision regarding consumption. They may also be
families.

Their ultimate aim is to satisfy the wants of their members with their
limited budgets. Households are the owners of factors of production—land,
labour, capital and entrepreneurial ability.

They sell the services of these factors and receive income in return in the
form of rent, wages, and interest and profit respectively.
Firms
The term firm is used interchangeably with the term producer in
economics. The decision to manufacture goods and services is taken by a
firm.
For this purpose, it employs factors of production and makes payments to
their owners. Just as household’s consumer goods and services to satisfy
their wants, similarly firms produce goods and services to make a profit.

The term ‘firm’ includes joint stock companies like DCM, TISCO etc., public
enterprises like IOC, STC, etc., partnership concerns, cooperative societies,
and even small and big trading shops which do not manufacture the
commodities they sell.
Circular flow of income( two
sector model)
Thank
s

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