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01A. Introduction To Macroeconomics

This document provides an introduction to macroeconomics by Dr. Akshay Dhume. It defines macroeconomics as the study of the overall economy, focusing on topics like economic growth and business cycles. The key macroeconomic objectives are high and stable growth in output and employment, along with low and stable inflation. The document discusses tools like fiscal and monetary policy that governments use to influence macroeconomic variables and achieve their objectives. It also introduces important macroeconomic concepts such as aggregate demand and supply, and how they determine equilibrium output and prices in the economy.

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Vandana Rao
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78 views13 pages

01A. Introduction To Macroeconomics

This document provides an introduction to macroeconomics by Dr. Akshay Dhume. It defines macroeconomics as the study of the overall economy, focusing on topics like economic growth and business cycles. The key macroeconomic objectives are high and stable growth in output and employment, along with low and stable inflation. The document discusses tools like fiscal and monetary policy that governments use to influence macroeconomic variables and achieve their objectives. It also introduces important macroeconomic concepts such as aggregate demand and supply, and how they determine equilibrium output and prices in the economy.

Uploaded by

Vandana Rao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Introduction to

Macroeconomics
Dr. Akshay Dhume

02/15/2023 1
Reading
 1A.1.1. S_N_Chapter19
 1A.1.2. S_N_Chapter20

02/15/2023 2
Macroeconomics
 Macroeconomics is the study of the economy as a whole

 Central Themes of Macroeconomics


◦ Short-term fluctuations in output, employment, financial conditions and prices –
Business Cycles
◦ Longer term trends in output and living standards – Economic Growth

 Central Questions of Macroeconomics


◦ Short-term
 Why do output and employment sometimes fall, and how can unemployment be
reduced?
 What are sources of price inflation and how can prices be kept under control?
◦ Long-term
 How can the nation increase its rate of growth?

02/15/2023 3
Macroeconomic Objectives
“High level and rapid growth in Output”
 (Popular) Measure of Output: actual market prices
◦ Gross Domestic Product (GDP) –  Real GDP: Measured in constant
the market value of all final goods or invariant or base year prices
and services produced within a  Potential GDP:
country during a given year ◦ Maximum sustainable level of
◦ Real GDP versus Nominal GDP output that can be produced without
 Nominal GDP: Measured in fueling inflationary pressures

02/15/2023 4
Actual and Potential Output

02/15/2023 5
Macroeconomic Objectives
“High Employment and Low Unemployment”
 Seek high paying jobs without searching and waiting
too long
 Seek job security and good benefits
 Unemployment:
◦ “An individual is unemployed if the individual is seeking a job
at the prevailing market wage but is not able to avail one”

02/15/2023 6
Macroeconomic Objectives
“Price Stability: Low and Stable Inflation Rates”
 Inflation is a sustained rise in the overall price level.
 Measures of Overall Price Level
◦ Consumer Price Index
◦ Wholesale Price Index
◦ or

 Deflation is the decline in overall price level


 Policymakers desire a gentle rise in overall price level with low levels
of volatility
◦ Price stability is important as a smoothly functioning system requires that prices
accurately convey information about relative scarcity
◦ High inflation as well as deflation impose costs

02/15/2023 7
Macroeconomic Policy Instruments
 Policy instrument is an economic variable under the control of the
policymaker that can affect one or more macroeconomic
objective/goal
 Policy Instruments
◦ Fiscal Policy:
 Government Expenditure
 Government Purchases
 Transfer Payments
 Government Receipts
 Tax
 Non-Tax
◦ Monetary Policy:

◦ International Trade and Financial Policy:

02/15/2023 8
Aggregate Demand and Supply
 Aggregate demand refers to the total amount that different
sectors in the economy willingly spend in a given period.

 Aggregate demand is the sum of spending on Consumption


(C), Private Domestic Investment (I), Government
Expenditure (G) and Net Exports (NX), i.e. Exports minus
Imports

 Aggregate supply refers to the total quantity of goods and


services that the nation’s businesses willingly produce and
sell in a given period.

02/15/2023 9
Aggregate Demand and Supply

02/15/2023 10
Aggregate Demand and Supply

02/15/2023 11
Aggregate Demand and Supply:
Application: War Time Boom

02/15/2023 12
Aggregate Demand and Supply:
Application: Supply Shock
 What will happen to equilibrium Output and Price
Level if Supply of Oil is Cut? (Oil is a key input in
production process)

02/15/2023 13

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