Macroeconomics Lecture 1

Economic Problem

• Human wants are unlimited, while resources are scarce, leading to the problem of scarcity and choice.
• Opportunity cost is the next best alternative choice that has been forgone, applicable to both micro and macro level decisions.

Classification of Economics

• Microeconomics studies individual entities like individuals, markets, firms, and households, focusing on micro aspects of the economy.
• Macroeconomics examines the behavior of the economy as a whole, studying aggregate behavior, and the interactions between individuals and firms.
• Long-run growth depends on economic aggregates, with macroeconomics considering the long-run growth rate and microeconomics focusing on the amount of output the economy is capable of producing.

Development of Macroeconomics

• Before Keynes' "General Theory", the distinction between micro and macro economic issues did not arise.
• The Great Depression of 1929 highlighted the need for separate study of macroeconomics, as classical models failed to explain prolonged high unemployment.
• Keynes' work led to the development of macroeconomics, emphasizing government intervention to affect output and employment.

Goals and Objectives of Macroeconomic Policies

• Full employment: ensuring all available resources are employed to produce goods and services, not necessarily 100% of the working labor force.
• High level of output (GDP): providing abundant goods and services, with GDP measuring the market value of entire output in a country during a year.
• Price stability: maintaining stable prices, with a steady level of low-moderate inflation, and avoiding high inflation or deflation.
• Economic growth: increasing the full production output level of a country over time, measured by growth in GDP or per capita income.
• Equitable distribution of income: narrowing the gap between higher and lower income groups, potentially through taxation.
• Sustainable Balance of Payment: maintaining a positive balance of trade, with net exports being the difference between the value of exports and imports.

Economic Problem

• Human wants are unlimited, while resources are scarce, leading to the problem of scarcity and choice.
• Opportunity cost is the next best alternative choice that has been forgone, applicable to both micro and macro level decisions.

Classification of Economics

• Microeconomics studies individual entities like individuals, markets, firms, and households, focusing on micro aspects of the economy.
• Macroeconomics examines the behavior of the economy as a whole, studying aggregate behavior, and the interactions between individuals and firms.
• Long-run growth depends on economic aggregates, with macroeconomics considering the long-run growth rate and microeconomics focusing on the amount of output the economy is capable of producing.

Development of Macroeconomics

• Before Keynes' "General Theory", the distinction between micro and macro economic issues did not arise.
• The Great Depression of 1929 highlighted the need for separate study of macroeconomics, as classical models failed to explain prolonged high unemployment.
• Keynes' work led to the development of macroeconomics, emphasizing government intervention to affect output and employment.

Goals and Objectives of Macroeconomic Policies

• Full employment: ensuring all available resources are employed to produce goods and services, not necessarily 100% of the working labor force.
• High level of output (GDP): providing abundant goods and services, with GDP measuring the market value of entire output in a country during a year.
• Price stability: maintaining stable prices, with a steady level of low-moderate inflation, and avoiding high inflation or deflation.
• Economic growth: increasing the full production output level of a country over time, measured by growth in GDP or per capita income.
• Equitable distribution of income: narrowing the gap between higher and lower income groups, potentially through taxation.
• Sustainable Balance of Payment: maintaining a positive balance of trade, with net exports being the difference between the value of exports and imports.