introduction of macro economics.pdf

Introduction of Macro Economics Meaning The term 'macro' has been derived from a Greek word 'Makros' meaning 'large' or aggregative'. This term was first used by Ragnar Frisch in 1933. This branch of economics that studies the problems of economy as a whole is called macro economics. Macro economic...

Introduction of Macro Economics Meaning The term 'macro' has been derived from a Greek word 'Makros' meaning 'large' or aggregative'. This term was first used by Ragnar Frisch in 1933. This branch of economics that studies the problems of economy as a whole is called macro economics. Macro economics deals with the problems of all the people in the country, all the firms and all the industries in the economy, total output and consumption of a commodity, income of a nation as a whole. It, thus, deals with national income, employment, savings, investment, etc. Macro economics studies general economic factors that determine aggregate level of income, production, employment, saving, investment and general price-level. Macro economics studies economic problem in the context and from the standpoint of the economy as a whole. The basic problem of macro economics is the determination of the flow of income and the theoretical foundation of macroeconomics is the circular flow of. income. Similarly Macro Economics is normative economics. It is based on certain value judgments. Definition Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole, focusing on aggregate indicators such as inflation, unemployment, economic growth, and national income Prof. Keynes: "Macro economics as the whole economic thinking that is behaviour of the economy in total to tackle the problems like inflation, unemployment etc". Samuelson: "Macro economics studies functioning of the economy as a whole." Nature of Macro Economics 1) Aggregative approach Macro analysis focuses on the economic activities for economy as a whole. It studies aggregate or averages like general prices, levels of national income, level of total employment, total money stock with the economy, aggregate demand, aggregate supply, etc. 2) Income is Link In macro economics, the level of income is more important variable while in micro economic price is more important variable. Macro economics studies the general price shows the average changes in price of all commodities taken together. If the average price level increases it implies that money income for all sectors is increasing and there is no change in the purchasing power of the people. 3) Aggregative demand Macro Economic Studies the Behaviour of Aggregate Demand and Aggregate Supply: In macro economics the changes in aggregate demand, aggregate supply are studied. Aggregate demand is consisted of consumption of goods and services by households investment and demand for capital goods from firms, demand for goods and services from government are also considered here. Macro economics studies relationship in Aggregate demand and the level of Income. 4) Aggregate Supply: It consists of supply of goods and services produced within the country and those imported from abroad. The goods produced within country provide income to the people so are imports. 5) ) In Macro Economics One Man's Expenditure is other's Income: At micro level if an individual spends his income then it is reduced to that extent but at macro level his spending is an earning for some other individual and the national income is not reduced but remains same. For example: Mr. 'X' spends Rs. 100 per month on the purchase of food items, bakery shops (expenditure). The bakery owner gets this Rs. 100 as his income from the sales of these items (income). So expenditure of 'X' is income for bakery owner. 6) Equilibrium in Macro Economics is More Complex: For economic equilibrium, same time equilibrium in money market, factor market. product market is required in addition to the equilibrium of aggregate demand and aggregate supply. Macro economic equilibrium will be seen when the following conditions are satisfied: a) AD = AS. b) Aggregate expenditure Aggregate income. c) Receipts from exports = Payment for imports. d) Supply of money = demand of money (v) factor demand = factor supply.