CHAPTER 1 : INTRODUCTION

1. WHAT IS ECONOMICS (CONVENTIONAL VS ISLAMIC)

2. WHAT IS THE DIFFERENCE BETWEEN MACRO & MICRO

3. MACROECONOMIC OBJECTIVE (CONVENTIONAL VS ISLAMIC)

DEFINITION OF ECONOMICS

CONVENTIONAL

Study of how society chooses to allocate its scarce resources to the production of g & s in order to satisfy unlimited wants – Irvin B. Tucker

Science which studies human behaviour as a relationship between ends & scarce means which have alternative uses – L. Robbins

Study of man in everyday business life – Alfred Marshal

Social-science study as it deals with human behaviour in making the decision on how people use scarce resources in fulfilling their unlimited wants - Economist

CONVENTIONAL

2 problems in economyi. Productive resources which to

produce g & s are limitedii. Human wants for g & s are

unlimited

Economy has to decide how to use these resources efficiently in order to attain the max possible satisfaction for the members

DEFINITION OF ECONOMICS

ISLAMIC

Social science which studies the economics problems of people imbued with islamic values – M A Mannan

Study of how man can achieve al-falah through his control, ownership & uses of these worldly resources based on the concepts of cooperation & partnership – Akram Khan

A study used by man to fulfill his as well as society’s wants according to syariah principle – Amir Mohd al-Faysal as Saud

A study of human activities for obtain, manage & use the economic resources according to the syariah principles for the betterment of human life both materially, spiritually in order to achieve the blessing of Allah (al-falah) – Islamics

ISLAMIC

Ultimate objective in Islam – to achieve al-Falah Mean – achieve success in this world & hereafter

i.e guarantee given by Allah

How to achieve al-falah?- All activities & DM are carried out based on

philosophic foundation of the Islamic economic system ie

i) Hablum min Allahii) Hablum minan nasiii) r/ship man vs nature & surroundingsiv) meaning of his living in this world

DIFFERENCES : CONVENTIONAL VS ISLAMIC

ConventionalConventional IslamicIslamic

Eco obj – to reach max o/put Eco obj – to reach max o/put with the use of scarce resourceswith the use of scarce resources

Tends to reach the same obj as Tends to reach the same obj as conventional but constrained conventional but constrained by the islamic ethical by the islamic ethical philosophyphilosophy

Consumer – max satisfactionConsumer – max satisfaction

Producer – max Producer – max ππ

Through 4 concept ie tauhid, Through 4 concept ie tauhid, rububiyyah, khalifah, tazkiyahrububiyyah, khalifah, tazkiyah

DIFFERENCES : MICRO VS MACROECONOMICS

MicroeconomicsMicroeconomics MacroeconomicsMacroeconomics

Part of economics that studies Part of economics that studies indv units or economic elements indv units or economic elements in the process of decision in the process of decision making ,ie focus on small making ,ie focus on small economic unitseconomic units

Studies the economy as a whole Studies the economy as a whole or deals with the aggregateor deals with the aggregate

Seeks to understand the big Seeks to understand the big picture rather than the detailed picture rather than the detailed of indv choiceof indv choice

↑ ↑ in price of sugarin price of sugar

Production of canned pineapplesProduction of canned pineapples

National incomeNational income

Economic growthEconomic growth

InflationInflation

MACROECONOMIC OBJECTIVEDIFFERENCES : CONVENTIONAL VS ISLAMIC

ConventionalConventional IslamicIslamic

Achieve full employmentAchieve full employment Max employmentMax employment

Achieve price stability Achieve price stability

Achieve equitable distribution Achieve equitable distribution of incomeof income

Achieve social justice & Achieve social justice & distribution of income & healthdistribution of income & health

Achieve economic growthAchieve economic growth Achieve optimal rate of Achieve optimal rate of economic growtheconomic growth

Achieve Achieve ē in foreign sectorē in foreign sector Universal educationUniversal education

OBJECTIVE OF CONVENTIOAL MACROECON

i) Full Employment- meaning- L force- unemployment rate

ii) P stability- meaning- inflation rate - 3 main problems associated with inflation rate

a) redistribution effect (real vs fixed income )b) uncertainty about future pricec) money looses its function as medium of exchange

OBJECTIVE OF CONVENTIOAL MACROECON

iii) Equitable of distribution of income - meaning - 2 methods

a) tax policyb) expenditure policy

- which one is better

iv) Economic growth - meaning & rate - classification (actual vs potential) - factors contribute to potential economic growth - business cycle / trade cycle

OBJECTIVE OF CONVENTIOAL MACROECON

v) ē in foreign sector - meaning - BOP – surplus vs deficit

a

c

d

Time / year

Potential output

a – peakb – recessionc – troughd – expansione – recovery

Trade cycle

Nationaloutput

b e

BUSINESS CYCLE

OBJECTIVE OF ISLAMIC MACROECON

i) Max job opportunities - same as conventional

ii) social justice & distribution of income & health - concept al Falah

- will not abuse the power & wealth given

iii) optimal econ growth - emphasize more on human capital - moral, spiritual, material aspect

iv) Education - equal opportunity regardless their background