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Intrduction to macroeconomics
INTRODUCTION TO
MACROECONOMICS
Microeconomics is the study of how households and firms
make decisions and how these decision makers interact in the
broader marketplace. In microeconomics, an individual chooses to
maximize his or her utility subject to his or her budget constraint.
Macroeconomic events arise from the interaction of many
individuals trying to maximize their own welfare. Because
aggregate variables are the sum of the variables describing
individuals’ decisions, the study of macroeconomics
is based on microeconomic foundations.
What is Macroeconomics?
 Microeconomics v/s macroeconomics
 Macroeconomics is concerned with
aggregates and average of the entire
economy, such as national
income, aggregate output, total
employment, total consumption, savings
and investments, aggregate
demand, aggregate supply, general level of
prices etc.
 In macroeconomics we study how these
aggregates and averages of the economy
as a whole are determined and what
 Macroeconomics is concerned with the behavior of
the economy as whole…with booms and
recessions, with economy’s total output of goods
and services, the growth of output, the rate of
inflation and unemployment, the balance of
payment, and exchange rate
 Macroeconomics focuses on the economic
behavior and policies that affects consumption and
investments, trade balance, determinants of wages
and prices, monetary and fiscal policies, the money
stock, budget, interest rate and national debt
Important issues in
macroeconomics
 Why does the cost of living keep rising?
 Why are millions of people unemployed, even when
the economy is booming?
 What causes recessions? Can the government do
anything to combat recessions? Should it?
 What is the government budget deficit? How does it
affect the economy?
 Why are so many countries poor?
 What policies might help them grow out of poverty?
Macroeconomics, the study of the economy as
a whole, addresses many topical issues:
Economic models
…are simplified versions of a more complex
reality
 irrelevant details are stripped away
…are used to
 Make testable predictions that can, when
proven, …
 … explain the economy’s behavior
 devise policies to improve economic performance
Economists use models to understand what goes on in the economy.
Here are two important points about models: endogenous variables
and exogenous variables. Endogenous variables are those which the
model tries to explain. Exogenous variables are those variables that a
model takes as given. In short, endogenous are variables within a
model, and exogenous are the variables outside the model.
Price
Demand
Q
*
P
Supply
Quantity
*
This is the most famous economic
model. It describes the ubiquitous
relationship between buyers and
sellers in the market. The point of
intersection is called an equilibrium.
Macroeconomic Analysis
 Helps in understanding the complicated
economic system
 Formation and understanding of national
economic policy
 Tool for the solution of economic problems
related to output, employment, and national
income
 Individual are ignored
 Individual differences are overlooked
Issues and Problems in Economics
 What to produce
 Allocation of resources
 How to produce
 For whom to produce
 Problems of efficiency and growth
Goals of Macroeconomic Policy
 Full employment
 High standard of living
 Price stability
 Reduction of economic inequality and
removal of poverty
 Rapid economic growth
 External balance v/s overall balance in
economic relations with the rest of the
world
Objectives of Macroeconomic
Policies
 High and rising per capita incomes
 Avoiding excessively high inflation
 Efficient use of human and non-human
resources with minimum possible
unemployment of labour
 Poverty removal and removal of extreme
inequalities of income
 Avoidance of persistent imbalance in
foreign trade and excessive resorts to
foreign capital
Review Questions
 What is macroeconomic?
 What is the difference between
microeconomics and macroeconomics?
 What are the major issues in macroeconomic
analysis?
 Why do we need to study macroeconomics?
 What is macroeconomics model? Why do we
use macroeconomic models?
 What are the objectives of macroeconomic
policies?
Campus Overview
907/A Uvarshad,
Gandhinagar
Highway, Ahmedabad
– 382422.
Ahmedabad Kolkata
Infinity Benchmark, 10th
Floor, Plot G1,
Block EP & GP,
Sector V, Salt-Lake,
Kolkata – 700091.
Mumbai
Goldline Business Centre
Linkway Estate,
Next to Chincholi Fire
Brigade, Malad
(West), Mumbai – 400
064.
Thank You

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Intrduction to macroeconomics

  • 3. Microeconomics is the study of how households and firms make decisions and how these decision makers interact in the broader marketplace. In microeconomics, an individual chooses to maximize his or her utility subject to his or her budget constraint. Macroeconomic events arise from the interaction of many individuals trying to maximize their own welfare. Because aggregate variables are the sum of the variables describing individuals’ decisions, the study of macroeconomics is based on microeconomic foundations.
  • 4. What is Macroeconomics?  Microeconomics v/s macroeconomics  Macroeconomics is concerned with aggregates and average of the entire economy, such as national income, aggregate output, total employment, total consumption, savings and investments, aggregate demand, aggregate supply, general level of prices etc.  In macroeconomics we study how these aggregates and averages of the economy as a whole are determined and what
  • 5.  Macroeconomics is concerned with the behavior of the economy as whole…with booms and recessions, with economy’s total output of goods and services, the growth of output, the rate of inflation and unemployment, the balance of payment, and exchange rate  Macroeconomics focuses on the economic behavior and policies that affects consumption and investments, trade balance, determinants of wages and prices, monetary and fiscal policies, the money stock, budget, interest rate and national debt
  • 6. Important issues in macroeconomics  Why does the cost of living keep rising?  Why are millions of people unemployed, even when the economy is booming?  What causes recessions? Can the government do anything to combat recessions? Should it?  What is the government budget deficit? How does it affect the economy?  Why are so many countries poor?  What policies might help them grow out of poverty? Macroeconomics, the study of the economy as a whole, addresses many topical issues:
  • 7. Economic models …are simplified versions of a more complex reality  irrelevant details are stripped away …are used to  Make testable predictions that can, when proven, …  … explain the economy’s behavior  devise policies to improve economic performance
  • 8. Economists use models to understand what goes on in the economy. Here are two important points about models: endogenous variables and exogenous variables. Endogenous variables are those which the model tries to explain. Exogenous variables are those variables that a model takes as given. In short, endogenous are variables within a model, and exogenous are the variables outside the model. Price Demand Q * P Supply Quantity * This is the most famous economic model. It describes the ubiquitous relationship between buyers and sellers in the market. The point of intersection is called an equilibrium.
  • 9. Macroeconomic Analysis  Helps in understanding the complicated economic system  Formation and understanding of national economic policy  Tool for the solution of economic problems related to output, employment, and national income  Individual are ignored  Individual differences are overlooked
  • 10. Issues and Problems in Economics  What to produce  Allocation of resources  How to produce  For whom to produce  Problems of efficiency and growth
  • 11. Goals of Macroeconomic Policy  Full employment  High standard of living  Price stability  Reduction of economic inequality and removal of poverty  Rapid economic growth  External balance v/s overall balance in economic relations with the rest of the world
  • 12. Objectives of Macroeconomic Policies  High and rising per capita incomes  Avoiding excessively high inflation  Efficient use of human and non-human resources with minimum possible unemployment of labour  Poverty removal and removal of extreme inequalities of income  Avoidance of persistent imbalance in foreign trade and excessive resorts to foreign capital
  • 13. Review Questions  What is macroeconomic?  What is the difference between microeconomics and macroeconomics?  What are the major issues in macroeconomic analysis?  Why do we need to study macroeconomics?  What is macroeconomics model? Why do we use macroeconomic models?  What are the objectives of macroeconomic policies?
  • 14. Campus Overview 907/A Uvarshad, Gandhinagar Highway, Ahmedabad – 382422. Ahmedabad Kolkata Infinity Benchmark, 10th Floor, Plot G1, Block EP & GP, Sector V, Salt-Lake, Kolkata – 700091. Mumbai Goldline Business Centre Linkway Estate, Next to Chincholi Fire Brigade, Malad (West), Mumbai – 400 064.