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Bba 4th Eco

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8 views8 pages

Bba 4th Eco

Uploaded by

chauhanshivani3053
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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School of studies of Management,

Jiwaji university Gwalior (M.P.)


Bba 4th
Subject: Macro Economics
Dr. Neha Yadav
[email protected]
Unit-1
Macroeconomics is a part of economic study which analyzes the economy as a whole. It
is the average of the entire economy and does not study any individual unit or a firm. It
studies the national income, total employment, aggregate demand and supply etc.

Nature of Macroeconomics
Macroeconomics is basically known as theory of income. It is concerned with the
problems of economic fluctuations, unemployment, inflation or deflation and economic
growth. It deals with the aggregates of all quantities not with individual price levels or
outputs but with national output.

As per G. Ackley, Macroeconomics concerns itself with such variables −

• Aggregate volume of the output of an economy


• Extent to which resources are employed
• Size of the national income
• General price level

Scope of Macroeconomics
Macroeconomics is much of theoretical and practical importance. Following are the
points covered under the scope of macroeconomics −

Working of the Economy


The study of macroeconomics is crucial to understand the working of an economy.
Economic problems are mainly related to the employment, behavior of total income and
general price in the economy. Macroeconomics help in making the elimination process
more understandable.

In Economy Policies
Macroeconomics is very useful in an economic policy. Underdeveloped economies face
innumerable problems related to overpopulation, inflation, balance of payments etc.
The main responsibilities of government are controlling the overpopulation, prices,
volume of trade etc.

Following are the economic problems where macroeconomics study are useful −

• In national income
• In unemployment
• In economic growth
• In monetary problems

Understanding the Behavior of Individual Units


The demand for individual products depends upon aggregate demand in the economy
therefore understanding the behavior of individual units is very important in
macroeconomics. Firstly, to solve the problem of deficiency in demand of individual
products, understanding the causes of fall in aggregate demand is required. Similarly to
know the reasons for increase in costs of a particular firm or industry, it is first required
to understand the average cost conditions of the whole economy. Thus, the study of
individual units is not possible without macroeconomics.

Macroeconomics enhances our knowledge of the functioning of an economy by studying


the behavior of national income, output, savings, and consumptions.

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Circular flow model is the basic economic model and it describes the flow of money and
products throughout the economy in a very simplified manner. This model divides the
market into two categories −

• Market of goods and services


• Market for factor of production

The circular flow diagram displays the relationship of resources and money between
firms and households. Every adult individual understands its basic structure from
personal experience. Firms employ workers, who spend their income on goods
produced by the firms. This money is then used to compensate the workers and buy raw
materials to make the goods. This is the basic structure behind the circular flow
diagram. Let’s have a look at the following diagram −
In the above model, we can see that the firms and the households interact with each
other in both product market as well as factor of production market. The product
market is the market where all the products by the firms are exchanged and factors of
production market is where inputs such as land, labor, capital and resources are
exchanged. Households sell their resources to the businesses in the factor market to
earn money. The prices of the resources, the businesses purchase are “costs”. Business
produces goods utilizing the resources provided by the households, which are then sold
in the product market. Households use their incomes to purchase these goods in the
product market. In return for the goods, businesses bring in revenue.

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Macroeconomics is a branch of economics that depicts a substantial


picture. It scrutinises itself with the economy at a massive scale and
several issues of an economy are considered. The issues confronted by an
economy and the headway that it makes are measured and apprehended
as a part and parcel of macroeconomics. When one speaks of the issues
that an economy confronts, inflation, unemployment, increasing tax
burden, etc., are all contemplated. This makes it apparent that
macroeconomics focuses on large numbers.
It studies the association between various countries regarding how the
policies of one nation have an upshot on the other. It circumscribes within
its scope, analysing the success and failure of government strategies.

Also, read: Difference between microeconomics and macroeconomics

Concepts covered under macroeconomics


A capitalist nation

A capitalist country is distinguished by sub-urbanised and voluntary


conclusions for economic planning instead of the consolidated political
practices. There are a few aspects of a capitalist financial structure
(Economy) mentioned that would provide a better intuition into the
concept. The attributes of a capitalist nation are as follows:

1. Liberty of customers to pick between goods and services.


2. The privilege of individuals to set up a business to supply goods and services.
3. There is a finite interference of the government.
4. Market forces regulate the distribution of goods.

Investment expenditure

As the name says it all, it is the money consumed towards charges to


create investments. In other words, it is the money that the family circle
(households) and enterprises spend on capital goods. It plays a decisive
role in macroeconomic pursuit for business cycles and economic
enhancement in the long run.

In short, the investment expenditure is proficient of creating additional


income and fosters employment in a nation.

The following are the types of investments:

1. Autonomous investment
2. Financial investment
3. Real investment
4. Gross investment
5. Net investment

Revenue: Revenue is the total income of an entity through sale of goods


and proffering its services to the customers. Revenue can be operating or
non-operating. The significance of revenue and its acknowledgements is
better comprehended if we are well aware of the aspects that are
contemplated while deciding the GDP.

The index of the economic health of a nation is measured through the GDP
(gross domestic product).

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