Notesale: Turn your study into money

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Introduction
to
Macroeconomics

What is Macroeconomics?
• Microeconomics examines the behavior of
individual decision-making units—business firms
and households
...

– Aggregate behavior refers to the behavior of all
households and firms together
...


Why study Macro economics?
• The economic well being of consumers
rich or poor is affected by movement in
interest rates, exchange rates, inflation
etc
...


Why study Macro economics?
• Being prepared for such changes in
fortunes can have considerable value;
more generally, it makes us all better
citizens able to grasp the complex
challenges that our societies face
...

• These extreme situations can tear at a
society’s social fabric, yet can be
prevented when policy-makers apply
sound economic principles
...
”, the distinction between Micro
& Macro economic issues did not arise at
all
...


The Roots of Macroeconomics
• The Great Depression was
a period of severe economic
contraction and high
unemployment that began in
1929 and continued
throughout the 1930s
...

People cut down spending
Large amounts of inventories started piling up
Businesses stopped production…
...


The Roots of Macroeconomics
• The accepted economic theory of the pre –
Keynesian era, believed that the economy
usually remains at full employment
level( full utilization of resources)
...

• However, these classical models failed to
explain the prolonged existence of high
unemployment during the Great
Depression
...


The Roots of Macroeconomics
• In 1936, John Maynard Keynes published The

General Theory of Employment, Interest, and
Money
...

• During periods of low private demand, the
government can stimulate aggregate demand to
lift the economy out of recession
...


Importance of Macro economics
With the help of GDP analysis
( a macroeconomic variable)
comment on the condition of
the economy
...

Ex
...
General Unemployment,
2
...


Importance of Macro economics
• In Economic Growth –
To plan for economic growth, it is
necessary that the macro economic
variables like income, output and
employment are evaluated
...
Thus, its
importance lies in analyzing the causes of
economic fluctuations and in providing
remedies
...
Example crowd
behaviour, unemployment problem,
paradox of thrift

Circular Flow of Income Model
• Functioning of an Economy
• A model to understand the functioning of a
macro economic system or the economy
as a whole is called the ‘Circular Flow of
Income Model’

Circular Flow of Income ( Real Flow)
Two Sector Economy
Goods for
consumption

Households

Factor Services for
production

Firms

Circular Flow of Income ( Real + Money
Flow) in a Two Sector Economy
Consumption
Expenditure

Goods for
consumption

Households

Factor
Payments

Firms
Factor
Services for
production

Significance of Circular Flow Model
• What starts from one variable comes back
to it after one round e
...
)
• Anybody who strives to stop the flow,
harms itself, after sometimes
...


Payment of
salaries to
Govt
...

Every
transaction
must have two
sides
...
What is Macroeconomics ?
2
...
What is circular flow of income
trend?
4
...
Who introduced Macroeconomics
in which years?

Thank you



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