Introduction to macroeconomics (0)

Introduction to macroeconomics
Macroeconomics
Macroeconomics (from Greek prefix "macr(o)-" meaning "large" + " economics ") is a branch of economics that deals with

• the performance , structure, behavior and decision -making of the entire economy ,
  
• be that a national, regional, or the global economy
  

The Economist's Dictionary of Economics defines Macroeconomics as

• "The study of whole economic systems aggregating over the functioning of individual economic units. It is primarily concerned with variables which follow systematic and predictable paths of behaviour and can be analysed independently of the decisions of the many agents who determine their level. It is a study of national economies and the determination of national income ."
  

Macroeconomics examines the economy as a whole and answers questions

• 'What causes the economy to grow over time?',
  
• 'What causes short-run fluctuations in the economy?‘
  
• 'What influences the values various economic indicators and how do those indicators affect economic performance?
  

Macroeconomics can be best understood in contrast to microeconomics.
An understanding of microeconomics is crucial to understand macroeconomics.

• To understand why a change in interest rates leads to changes in real GDP,
  
• Need to understand how lower interest rates influence decisions,
  
• The decision of how much to save, at the firm or household level;
  
• To understand how an individual, on average , will change their behavior we will then understand the large scale relationships in an economy.
  

Macroeconomics can also be useful.

• The economicwell-being of all consumers, rich or poor , is affected by movements in interest rates, exchange rates,and the rate of inflation.
  
• Businesses stand to gain or lose considerable amounts of money when their economic environment changes, regardless of how well they are managed .
  

Macroeconomics is relevant to voters who

• wonder what their governments are up to
  
• can also help governments avoid the worst economic crises
  

Economic growth is one of the most exciting issues in macroeconomics.
The list of reasons why economies grow:

• population increase , since more people can produce more output.
  
• accumulation of means of production : plant and equipment , roads, communication networks, and other forms of infrastructure make workers more productive.
  

Most important is the development and harnessing of knowledge to economic ends.
The most frequently used measure of a nation ’s economic well-being is its output and income, the gross domestic product (GDP).
The monetary value of all the finished goods and services produced within a country 's borders in a specific time period,

• GDP is usually calculated on an annual basis.
  

It includes all of private and public  consumption , government outlays, investments and exports less imports that occur within a defined territory.
Business cycles.

• refers to economy- wide fluctuations in production or economic activity over several months or years .
  

These fluctuations occur around a long- term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (expansion or boom ), and periods of relative stagnation or decline (contraction or recession ).

• important phenomenon associated with cyclical fluctuations is unemployment , (people seeking work cannot find it, even when the economy is growing rapidly).
  

The unemployment rate is the ratio of the number of unemployed workers to the size of the labour force .
The labour force consists of

• those who are either working or are actively looking for a job.
  

In comparison with the total population, it leaves out

• young people who are not yet working,
  

• the old who are retired,
  
• and those who do not wish to work—or have given up hope of working.
  

Inflation refers to the rate of change of the average level of prices.
Keynesian revolution explains why the study of macroeconomics is so intertwined with policy and politics .

• Two traditional demand management instruments are fiscal and monetary policy .
  

Fiscal policy manipulates government expenditures or taxes in an attempt to affect the volume of national spending.
Monetary policy is directed at influencing interest and exchange rates, and more generally conditions in financial markets ; this in turn affects spending on goods and services.
Key Concepts

• Macroeconomics gross domestic product (GDP)
  
• trend
  
• economic growth
  
• business cycle
  
• unemployment rate
  
• labour force
  
• labour
  
• capital factors of production
  
• labour share
  
• index, index number
  
• inflation
  
• hyperinflation
  
• capacity utilization
  
• procyclical and countercyclical
  
• real economy
  
• monetary economy
  

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• laissez- faire versus interventionism
  
• aggregate demand
  
• management price level
  
• co-ordination failures
  
• Keynesian revolution
  
• demand side
  
• economic agents
  
• fiscal policy
  
• monetary policy
  
• supply side
  
• exchange rate
  
• endogenous
  
• exogenous
  
• positive and normative economics
  

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