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INTRODUCTION TOMACROECONOMICS

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Microeconomicsis 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 herut i l i tysubject to his or her budget constraint.

Macroeconomic events arise from the interaction of manyindividuals 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.

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What is Macroeconomics?

Microeconomics v/s macroeconomics

Macroeconomics is concerned withaggregates and average of the entire

economy, such as national income,aggregate output, total employment, totalconsumption, savings and investments,aggregate demand, aggregate supply,general level of prices etc.

In macroeconomics we study how theseaggregates and averages of the economy

as a whole are determined and whatcauses fluctuations in them

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Macroeconomics is concerned with the behavior of

the economy as wholewith booms and

recessions, with economys total output of goods

and services, the growth of output, the rate ofinflation and unemployment, the balance of

payment, and exchange rate

Macroeconomics focuses on the economic

behavior and policies that affects consumption andinvestments, trade balance, determinants of wages

and prices, monetary and fiscal policies, the money

stock, budget, interest rate and national debt

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Important issues in

macroeconomics

Why does the cost of living keep rising?

Why are millions of people unemployed, even whenthe economy is booming?

What causes recessions? Can the government doanything to combat recessions? Should it?

What is the government budget deficit? How does itaffect 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:

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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 economys behavior devise policies to improve economic performance

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Economists use modelsto understand what goes on in the economy.

Here are two important points about models: endogenou s var iables

andexogenous var iables. 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 equi l ibr ium.

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Macroeconomic Analysis

Helps in understanding the complicatedeconomic system

Formation and understanding of national

economic policy Tool for the solution of economic problems

related to output, employment, and nationalincome

Individual are ignored

Individual differences are overlooked

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Issues and Problems in Economics

What to produce

Allocation of resources

How to produceFor whom to produce

Problems of efficiency and growth

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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

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Objectives of Macroeconomic

Policies

High and rising per capita incomes

Avoiding excessively high inflation

Efficient use of human and non-humanresources 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

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Review Questions

What is macroeconomic?

What is the difference betweenmicroeconomics and macroeconomics?

What are the major issues in macroeconomicanalysis?

Why do we need to study macroeconomics?

What is macroeconomics model? Why do weuse macroeconomic models?

What are the objectives of macroeconomicpolicies?

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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.

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Thank You