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Macro Economics: DR Jyotishree Pandey

This document provides an introduction and overview of macroeconomics. It discusses how macroeconomics emerged as a field following the work of Adam Smith and the Great Depression. John Maynard Keynes revolutionized economic thinking in the 1930s by arguing that aggregate demand determines economic activity and that governments should intervene to stabilize output and employment. The document defines macroeconomics as the study of the overall performance and behavior of the economy as a whole, including key variables like national income, employment, prices, and economic growth. It also outlines some basic concepts and goals of macroeconomics.

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Jyotishree Pandey
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131 views12 pages

Macro Economics: DR Jyotishree Pandey

This document provides an introduction and overview of macroeconomics. It discusses how macroeconomics emerged as a field following the work of Adam Smith and the Great Depression. John Maynard Keynes revolutionized economic thinking in the 1930s by arguing that aggregate demand determines economic activity and that governments should intervene to stabilize output and employment. The document defines macroeconomics as the study of the overall performance and behavior of the economy as a whole, including key variables like national income, employment, prices, and economic growth. It also outlines some basic concepts and goals of macroeconomics.

Uploaded by

Jyotishree Pandey
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We take content rights seriously. If you suspect this is your content, claim it here.
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MACRO

ECONOMICS
INTRODUCTION

DR JYOTISHREE PANDEY
ECONOMICS ON A DIFFERENT
SCALE
International economics
Macro Economics

National economy

Markets

Firms

Consumers

Micro Economics
WHERE DID THE DEBATE START?
Adam Smith (1723-1790) more or less
invented the subject of economics. He
developed the idea that the economy
worked best when each individual
pursued their own self interest. He also
recognised the importance of the
invisible hand of market forces in
allocating resources to where they were
most needed.

Adam Smiths ideas became the accepted


economic orthodoxy for many years.
Free-market (or classical) economic s
grew out of Adam Smiths work. The
government, it was believed, had little
role to play in managing the economy.
THE GREAT DEPRESSION
The Great Depression of the 1930s changed everything. The extent of
deprivation, unemployment and poverty was unprecedented in the modern
world. The depression became worse rather than getting better, as
classical economists argued it would. Economic theory failed to explain
what was going on, or how the problems could be solved
KEYNES TO THE RESCUE
In the 1930s, Keynes spearheaded a revolution in economic
thinking, overturning the older ideas of
neoclassical economics that held that free markets would,
in the short to medium term, automatically provide full
employment, as long as workers were flexible in their wage
demands. Keynes instead argued that aggregate demand
determined the overall level of economic activity, and that
inadequate aggregate demand could lead to prolonged
periods of high unemployment. He advocated the use of
fiscal and monetary measures to mitigate the adverse
effects of economic recessions and depressions. Following
the outbreak of the Second World War, Keynes's ideas
concerning economic policy were adopted by leading
Western economies. During the 1950s and 1960s, the success
of Keynesian economics resulted in almost all capitalist
governments adopting its policy recommendations.
Economics is what economists do- Jacob Viner
MACROECONOMICS
Macroeconomics is the study of the behavior and performance of the economy as a whole.

Definition:
Gardner Ackley: Macroeconomics concerns the overall dimensions of economic lifeMore
specifically, macroeconomics concerns itself with such variables as aggregate volume of an
economy, with the extent to which its resources are employed, with size of the national
income, with the general price level, etc.

K.E. Boulding: Macroeconomics is the stud of the nature, relationship and behavior of
aggregates of economic quantities.Macroeconomics deals not with individual quantities as
such, but aggregates of these quantitiesnot with individual incomes, but the national
income, not with individual prices, but with the price levels, not with individual output, but
with the national output.

N.G. Mankiw: macroeconomics is the study of the economy as a whole- including growth in
incomes, changes in prices, and the rate of unemployment. It attempts both to explain
economic events and to advise policies to improve economic performance.
NATURE OF MACROECONOMICS
Macroeconomics is relatively a new branch of economics
A full fledged macroeconomics appeared only after the publication of Keynes
General Theory of Employment, Interest and Money in 1936
Macroeconomics is more normative by nature (unlike positive science)
Macroeconomics is both a theoretical as well as policy science
Evolution of Macroeconomics
Classical and Neo Classical School of Thought (1776-1930)
Most of the classical theories built on micro foundation
Macroeconomics not developed as a separate branch of economics
Keynesian School of Thought (1930s-1960s)
The publication of Keynesian General Theory of Employment, Interest and
Money laid the foundation of modern macroeconomics
Post Keynesian Schools of Thought (early 1970s onwards)
Monetarism (from demand management to monetary management)
New Classical School ( emphasized on the role of individuals rational expectations)
New Keynesian School (problems of information and cost of changing prices lead
price rigidities which cause fluctuation in output and employment)
Macroeconomics

Theory of income Theory of general Theory of economic


Economic Policies
& employment price level growth

Theory of consumption Theory of


function investment

Macroeconomics is concerned with the behavior of the economy as a whole.


It deals with
the economys total output of goods and services,
the growth rate of output,
the rates of inflation and unemployment,
the balance of payments,
exchange rates, Prime concern of
macroeconomics
booms and recessions,
economic policies, etc.
Types of macroeconomics
Macro static
Comparative macro static
Macro dynamic

Importance of macroeconomics
Understanding the working of the economy
Explaining the behavior of economic complexities and finding solution
Formulating economic programs and policies
Analyzing various macroeconomic issues
Any other ?

Limitations of Macroeconomics
It ignores the changes in the constituent elements of aggregates
It may lead to misleading conclusion as aggregates are not a reality but a
picture or approximation of reality
Many consider macroeconomics as an intellectual attraction
Other ?
GOALS OF MACROECONOMICS

Full employment

High living standards

Price stability

Reduction of economic inequality

Rapid economic growth

Steady foreign exchange position


BASIC CONCEPTS OF MACRO
ECONOMICS

Stocks and Flows

Equilibrium and Disequilibrium

Statics and Dynamics


BASIC CONCEPTS OF MACROECONOMICS
National Product and Domestic Product

Aggregate Consumption

Gross Domestic Savings

Gross Domestic Capital Formation

Wholesale Prices, Consumer Prices and Inflation

Employment

Balance of Payments

Rate of Growth

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