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Chapter 5 - Introduction To Macroeconomics WMN

This document provides an introduction to macroeconomics. It discusses the key differences between microeconomics and macroeconomics, with microeconomics focusing on individual decision-making and macroeconomics analyzing aggregate economic behavior and performance. The document also outlines four main goals of macroeconomic policy: achieving full employment, price stability, economic growth, and an equitable distribution of income. It then examines the three main types of government policies - fiscal, monetary, and growth policies - used to influence macroeconomic variables and meet these goals. Finally, it introduces the main components of macroeconomics - households, firms, government, and the rest of the world - and defines aggregate demand and aggregate supply.

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0% found this document useful (0 votes)

412 views24 pages

Chapter 5 - Introduction To Macroeconomics WMN

Uploaded by

Nur Irfan

We take content rights seriously. If you suspect this is your content, claim it here.

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Download as PPTX, PDF, TXT or read online on Scribd

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INTRODUCTION TO

MACROECONOMICS

1.0 MICROECONOMICS VS
MACROECONOMICS

Macroeconomics studies the aggregate behaviour

of the entire economy.
Macroeconomics studies the overall price level as
compared to microeconomics which studies
individual prices.
Macroeconomics analyses overall employment in
the economy.
Aggregate refers to the sum total of behaviour of
all individuals in the economy.

1.0 MICROECONOMICS VS
MACROECONOMICS
MICROECONOMICS

MACROECONOMICS

Studies on individual

Studies on national

income
Analyzes demand for and
supply of labour
Deals with household and
firms decisions
Studies on individual
prices
Analyzes demand and
supply of goods

income
Analyzes total
employment in the
economy
Deals with aggregate
decisions
Studies overall price level
Analyzes aggregate
demand and aggregate
supply

2.0 MACROECONOMIC GOALS

FOUR
MAJOR
GOALS

Equitable Distribution of Income

Economic Growth

Price Stability

Full Employment

2.0
MACROECONOMIC
GOALS

Full Employment

Full employment of all

available factors of
production; labour, land,
capital and entrepreneurs.
Resources needed to be
efficiently used in order to
attain maximum output.
The more resources are
employed, the higher the
output of goods and services.

2.0 MACROECONOMIC GOALS

Price Stability

Controlling inflation keep

national inflation rate as low
as possible.
Inflation occurs when there is
an increase in the overall
price level.
Inflation can reduce
purchasing power of
consumers the qty of goods
and services purchased will
be less in inflation is high.

2.0 MACROECONOMIC GOALS

Economic Growth

Economy must be operating

at maximum capacity to
achieve economic growth.
It is an increase in the full
production output level of a
nation overtime.
Economic growth will
experience ups and downs
which is called as business
cycle.

2.0 MACROECONOMIC GOALS

Equitable Distribution of
Income

Most of the nations try to

narrow the gap between
the higher income and the
lower income groups.
This is to ensure that all
people are equal in terms of
standard of living.
Taxation , subsidies,
transfer payments and
providing education
scholarship are among
methods that are used to
achieve equitable
distribution of income.

3.0 GOVERNMENT POLICIES

Government

plays an important role in the

realization of macroeconomic goals.
Government manages the economy by
implementing 3 kinds of policies:

Fiscal
Policy

Moneta
ry
Policy

Growth
Policy

Fiscal
3.0 GOVERNMENT POLICIESPolicy
Refers to the government policies
concerning taxes and expenditure.
Government

collects taxes from

households and firms and use these
funds on public expenditure such as
for building of school, highways, clinic
and so on.

Purpose:

to stabilise the economy.

Fiscal
3.0 GOVERNMENT POLICIESPolicy

Two types of fiscal policies:

Contractionary Fiscal Policy.

Government can use this policy to bring the

economy out of inflation by increasing taxes and
decreasing government expenditure.
This measure slows down growth.

Expansionary Fiscal Policy

II.

Implemented to get the economy out of a slump.

Government implements this policy by reducing
taxes and increasing government expenditure.
This measure will increase the disposable income
which will, in turn, lead to an increase in
consumption.

Moneta
3.0 GOVERNMENT POLICIES ry
Policy
Refers to tools used by the
Government through the central bank
to control the supply of money.
Purpose: to maintain the overall price
level, to achieve higher economic
growth, to remove fluctuations in
production and to achieve full
employment.

Moneta
3.0 GOVERNMENT POLICIES ry
Policy
Two types of monetary policies:
Contractionary Monetary Policy.

Government can use this policy to curb

inflation where the amount of money
supplied will be reduced.

Expansionary Monetary Policy

II.

This policy is implemented when there is

deflation or recession wherein the
government will increase the supply of
money.

Growth
3.0 GOVERNMENT POLICIESPolicy
also known as supply side policy.
It

is a growth policy started by the

government that focus on stimulating
aggregate supply.
Government will implement the
measures on improving productivity of
production factors and the
performance of firms.