ENVIRONMENT
1. INTRODUCTION
What Is Macroeconomics?
Macroeconomics is the study of the behavior of the economy
as a whole and the policy measures that the government uses
to influence it.
Utilizes measures including total output, rates of
unemployment and inflation, and exchange rates.
Examines the economy in the short run, long run,& very LR.
Short run: movements in the business cycle.
Long run: movement in prices.
Very long run: economic growth.
Macroeconomics aggregates the individual markets whereas
microeconomics examines the behavior of individual economic
units and the determination of prices in individual markets.
What Is Macroeconomics?
Microeconomics examines the behavior of individual
decision-making unitsbusiness firms and
households.
Macroeconomics deals with the economy as a
whole; it examines the behavior of economic
aggregates such as aggregate income, consumption,
investment, and the overall level of prices.
Aggregate behavior refers to the behavior of all
households and firms together.
What Is Macroeconomics?
We wonder why some countries are growing faster than
others and why inflation fluctuates. Why recessions
occur; why economies boom?
Macroeconomics deals with the performance, structure,
behaviour and decision-making of the entire economy.
Study of macroeconomics is important because the state
of the entire economy (macroeconomy) affects everyone
in many ways. It plays a significant role in the political
sphere while also affecting public policy and societal
well-being.
What Is Macroeconomics?
Macroeconomists study aggregated indicators such as
GDP, unemployment rates, and price indices to
understand how the whole economy functions.
Macroeconomists develop models that explain the
relationship between such factors as national income,
output, consumption, unemployment, inflation, savings,
investment, and international trade.
Macroeconomists are also concerned with issues such
as recessions (periods in which real GDP falls mildly)
and depressions (when GDP falls more severely), and
with monetary and fiscal policies.
Price
Level
AD
LR
AS
SR AS
Ypot
Output
The business cycle is the cycle of shortterm ups and downs in the economy.
A contraction, recession,
or slump is the period in
the business cycle from a
peak down to a trough,
during which output and
employment fall.
Recession
Potential
GDP
Peak
Real GDP
Expansion
Expansion
Trough
2010
Inflation
Inflation is a process of rising prices.
We measure the inflation rate as the percentage
change in the average level of prices or the price
level.
The Consumer Price Index CPI is a common
measure of the price level used to calculate inflation
in many countries, now in India too.
An alternative measure of inflation, called Wholesale
Price Index WPI, was used primarily in India.
Inflation
Is Inflation a Problem?
Unpredictable changes in the inflation rate are a
problem because they redistribute income in arbitrary
ways between employers and workers and between
borrowers (gain) and lenders (lose).
2015-16
2.0
-2.8
5.9
4.9
Unemployment
The unemployment rate is the percentage of
the labor force that is unemployed and looking
for a job.
The unemployment rate is a key indicator of the
economys health.
The existence of unemployment seems to imply
that the aggregate labor market is not in
equilibrium. Why do labor markets not clear
when other markets do?
Why Macroeconomics?
Macroeconomic models and their
forecasts are used by both governments
and large corporations to assist in the
development and evaluation of economic
policy and business strategy.