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Subjek for Principles of Economicsd
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INTRODUCTION TO 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
Studies on individual income
Analyzes demand for and supply of labour
Deals with household and firms decisions
Studies on individual prices
Analyzes demand and supply of goods
Studies on national income
Analyzes total employment in the economy
Deals with aggregate decisions
Studies overall price level Analyzes aggregate
demand and aggregate supply
MACROECONOMICSMICROECONOMICS
1.0 MICROECONOMICS VS MACROECONOMICS
FOUR MAJOR GOALS
Full Employment
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Equitable Distribution of Income
2.0 MACROECONOMIC GOALS
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 GOALSEconomic 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 GOALSEquitable 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.
Fiscal Policy
Monetary Policy
Growth Policy
3.0 GOVERNMENT POLICIESGovernment plays an important role in the realization of
macroeconomic goals. Government manages the economy by implementing 3
kinds of policies:
Fiscal Policy3.0 GOVERNMENT POLICIES
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 Policy3.0 GOVERNMENT POLICIES
Two types of fiscal policies:I. 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.II. Expansionary Fiscal Policy
• 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.
Monetary Policy3.0 GOVERNMENT POLICIES
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.
3.0 GOVERNMENT POLICIES
Two types of monetary policies:I. Contractionary Monetary Policy.
• Government can use this policy to curb inflation where the amount of money supplied will be reduced.
II. Expansionary Monetary Policy• This policy is implemented when there is deflation or
recession wherein the government will increase the supply of money.
Monetary Policy
Growth Policy3.0 GOVERNMENT POLICIES
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.
4.0 COMPONENTS OF MACROECONOMICS
Firms
Household
Rest of the world
Government
4.0 COMPONENTS OF MACROECONOMICS Household
Household own all factors of production.
Household provide the service of factors of production to firms and government and receive payments in the form of rent, wages, interest and profit.
4.0 COMPONENTS OF MACROECONOMICS Firms
A firm is an organisation that buys factors of production from households and then produce and sells goods and services.
Firms will sell goods and services to household and the government and earn revenue from sales.
4.0 COMPONENTS OF MACROECONOMICS Government
Government collects taxes from household and firms.
Government revenue will be spent on development and for operational purposes.
4.0 COMPONENTS OF MACROECONOMICS
Rest of the worldRefers to the foreign
sector which is involved in the import and export of goods and services.
4.0 COMPONENTS OF MACROECONOMICS
GOVERNMENT
Supply of Factor of Production
Payment for Factor of Production
Payments for goods and services
Purchase of goods and services
TaxesTaxes
Payments
Transfer payment,
wages
Import
Export
Import
Export
• Aggregate demand refers to the total quantity of output demanded at alternative price levels in a given period of time, ceteris paribus.
• Aggregate demand is the total demand for goods and services.
• Aggregate supply refers to the total quantity of output supplied at alternative price levels in a given period of time, ceteris paribus.
• Aggregate supply also refers to the total supply of goods and services.
5.0 AGGREGATE DEMAND & AGGREGATE SUPPLY
5.0 AGGREGATE DEMAND & AGGREGATE SUPPLY
AGGREGATE DEMAND
- Refers to the total quantity of output demanded at alternative price levels during a given time period, ceteris paribus.
Overall Price Index
P*
Q*
AS
AD
Aggregate output
AGGREGATE SUPPLY
- Refers to the total quantity of output supplied at alternative price levels during a given time period, ceteris paribus.
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