Introduction to Macroeconomics

• Macroeconomics is introduced

Macroeconomics vs Microeconomics

• Microeconomics studies decision-making by single entities like individuals or firms.
• A microeconomic example is determining production quantity or price.
• Macroeconomics studies decision-making for the economy as a whole, at a national level
• Examples of Macroeconomics include looking at inflation, unemployment, money supply, and national income.
• Differences between microeconomics and macroeconomics as follows:
  • Microeconomics looks at production output in individual industries and businesses, while macroeconomics looks at national production or output.
  • Microeconomics studies the price of individual goods and services whereas macroeconomics looks at aggregate price levels.
  • Microeconomics considers wages or income of labor and distribution of income and wealth, while macroeconomics deals with national income.
  • Microeconomics studies employment by individual businesses and industries, whereas macroeconomics is concerned with employment and unemployment in the national economy.

Objectives of Macroeconomics

• Macroeconomics has conventional objectives which are; full employment, price stability, economic growth, equitable distribution of income, and equilibrium in the foreign sector.
• Macroeconomics also has objectives from an Islamic perspective, these are: social justice, equitable distribution of income, universal education, optimal rate of economic growth, and maximization of employment generation

Conventional Perspective Macroeconomic Objectives

• Full employment does not mean there are no unemployed or jobless people.
• Full employment does not equate to 100% of the labor force being employed.
• Potential benefits of full employment allow an economy to optimize available resources efficiently.
• Unemployment consequences for the economy include wastage of resources and social problems.
• High inflation rates and sustained increases in the general price level can be disastrous for an economy.
• Inflation directly influences consumer purchasing power, with higher inflation reducing the quantity of goods and services purchased.
• Maintaining price stability avoids uncertainty and disruptions, enabling consumers and businesses to pursue long-term plans.
• Economic growth can be described as the expansion in national output over a period of time.
• Economic growth indicates positive national economic performance.
• Economies experience short-term ups and downs in performance, which is called a business cycle.
• A typical business cycle involves the economy expanding from a trough to a peak, and then contracting from the peak down to the trough; a contraction phase is called a recession
• Sharing economic growth equally among the population is imperative.
• Policymakers generally try to minimize the gap between the rich and poor.
• Income equality ensures equal standards of living.
• Income disparities create social friction and problems.
• The foreign sector consists of economic transactions beyond political boundaries.
• A balance of payment (BOP) deficit forces a country to borrow from overseas, leading to high debt. On the other hand a prolonged BOP surplus leads to inflation.
• Understanding and determining a favorable BOP scale is important for a country.

Islamic Perspective Macroeconomic Objectives

• Social justice aims to achieve spiritual salvation to human happiness.
• Social justice is based on the principle that all existence in the universe belongs to Allah.
• Social justice dictates there’s no difference between the rich and the poor or between races.
• Social justice eliminates discrimination due to race, color, or position.
• Criterion of a man's worth is character, ability, and service to humanity in Islamic perspective.
• Islam's income-redistribution mechanism allows some income inequality to promote individual initiative.
• Social justice in Islam is rooted in man's faith.
• Income redistribution, be it voluntary or compulsory, is an economic necessity and a means to spiritual salvation.
• Islamic happiness derives from contentment and gratitude and not material possessions.
• Acquisition of knowledge is obligatory in Islam.
• Every child, regardless of birth, must receive equal educational opportunities.
• Man's superiority over all creations stems from superior knowledge.
• An Islamic economy mandates government subsidies or free education to equalize opportunities for individuals with varying wealth.
• Growth in an Islamic economy encompasses moral, spiritual, and material element.
• Islamic economic growth includes human and material capital formation.
• Man remains central in all Islamic economic activities. Investment compositions should align with this, hence, expenditure on education is an investment.
• An Islamic economy ensures economic growth maximizes new employment opportunities.
• Additional employment must be generated in a technically efficient manner with suitable technology aligned with available resources in the long run.
• Ensuring sufficient employment includes providing education and training opportunities in specific fields.