top-rated free essay

Macroeconomics

By Vikas-Ganjave Dec 11, 2014 1765 Words
Macroeconomic Analysis and Policy

Session-1
SessionBiswa Swarup Misra
Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Learning Objectives
• What is Macroeconomics?
• Macroeconomics vs. Microeconomics
• Why Study Macroeconomics?
• Influential macroeconomic events
• Macro Economic Policy
• Key Macroeconomic Variables
Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Rules of the Class
• Either you speak or the instructor.
• No cell phones/laptops
• Attendance can be taken any time during the session.
• Do not enter the class room after the scheduled class
time
• You can leave the classroom in between a session
but are not allowed to enter again in that session

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Rules for Examinations
• Minimum Pass Marks - 30. <30 = F Grade
• There will Quizzes, Mid term and End term
examinations and an Individual Assignment
• Quiz would be pre - announced
• No undue request for make up quiz

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Grading Pattern (Tentative)
1. Quizzes

-

30

1. Mid Term

-

15

1. End Term

-

35

1. Assignments and Class Participation

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

20

Biswa Swarup Misra

How to Understand Economics
Possible suggestions:
• A study in
w Resource optimsation
w Resource management
w Resource Allocation
• More generic way- An exercise in Constrained
Optimisation.
• Why constrained opmisation not resource
optimisation - Resources need not be the only
constraint. Other constraints could be political
economy constraints, governance constraints,
ecological
constraints etc.
Macroeconomic Analysis and Policy
Biswa Swarup Misra
PDF created with pdfFactory Pro trial version www.pdffactory.com

Implications of Unfair Practices
• Any body found adopting unfair means in any
examination will get negative marks equivalent
to the maximum marks allotted for that
examination.
• Suspicion of adopting unfair means is enough.
• You will follow the written guidelines in
examination Question paper and Answer sheet
(need not be announced during the
examination)
• Assignments will be subject to plagiarism test.
Tolerance limit 5per cent
Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

What is Macroeconomics?
• Macroeconomics Deals with the economy as a whole.
• Macroeconomics focuses on the determinants of
national income, deals with aggregates such as
aggregate consumption and investment, and looks at
the overall level of prices instead of individual prices.
• Macroeconomics may be defined as that branch of
economic analysis which studies the behaviour of not
one particular unit, but of all the units combined
together.
• The following are the fields covered by
macroeconomics:
Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Fields of Macroeconomics
• Theory of Income, Output and Employment with its three
constituents, namely,
§ the theory of consumption function,
§ the theory of investment function and
§ the theory of business cycles or economic fluctuations.

• Theory of Prices with its constituents of the theories of inflation and deflation.
• Theory of Economic Growth dealing with the long-run
growth of income, output and employment.
• Macro Theory of Distribution dealing with the relative
shares of wages and profits in the total national income.

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Macroeconomists...
• Try to figure out why overall economic activity rises
and falls
• Try to understand what determines the level and
rate of change of overall prices
• Study other variables that play a major role in
determining the overall levels of production,
income, employment, and prices

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Macroeconomists...
• The words Micro and Macro have Greek origins
Mikros and Makros.
• Mikros implies small and Makros large.
• Microeconomics is concerned with the most
‘Elemental’ economic units, like consumer, firm,
input, market and industry.

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Microeconomics vs. Macroeconomic
• The micro-macro distinction in economics is not based
solely on size.
• Ex: Studying pricing policy of GE- Realm of
microeconomics
• Studying inflation in a small country like Rwanada or
Burundi - Realm of Macroeconomics
• Microeconomics focuses on decisions of individual units
however large they may be; Macroeconomics concentrates
on behaviour of entire economies, no matter how small.
• Macroeconomics study the overall price level,
unemployment rate and other things that we call economic
aggregates.

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Economic aggregates
• Economic aggregates is an abstraction that people use to describe some salient features of the economic life.
• Although we observe prices of individual products, we never see the price level.
• Domestic product/national output is also an abstract notion, though it represents the total production in an economy, it is unobservable.
• The process by which real objects such as computers, wheat, wine are combined into an abstraction called total domestic
product is aggregation
Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Limitations of Aggregation
• Ignores distinction amongst the different products.
• Although composition of demand and supply in
different markets matters, it may be of little
consequence for the economy wide issues such as
growth, inflation, unemployment etc. - the issues that
concern macroeconomics
• During economic fluctuations, markets for different
products tend to move up or down together.
Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Macroeconomics vs. Microeconomics
Let’s look more carefully at the difference between
microeconomic and macroeconomic questions.
MICROECONOMIC QUESTIONS
Go to business school or take a
job?
What determines the salary
offered by Citibank to Cherie
Camajo, a new Columbia MBA?

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

MACROECONOMIC
QUESTIONS
How many people are
employed in the economy as a
whole?
What determines the share
workers in the total income in a
given year?

Biswa Swarup Misra

Macroeconomics vs. Microeconomics
MICROECONOMIC QUESTIONS
What determines the cost to a
university or college of offering
a new course?
What government policies
should be adopted to make it
easier for low-income students
to attend college?
What determines whether
Citibank opens a new office in
Shanghai?

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

MACROECONOMIC
QUESTIONS
What determines the overall
level of prices in the economy
as a whole?
What government policies
should be adopted to promote
full employment and growth in
the economy as a whole?
What determines the overall
trade in goods, services and
financial assets between the
U.S. and the rest of the world?
Biswa Swarup Misra

Macroeconomics vs. Microeconomics
• In macroeconomics, the behavior of the whole
macroeconomy is, indeed, greater than the sum of
individual actions and market outcomes.
• Example: Paradox of thrift: when families and businesses are worried about the possibility of economic hard times, they
prepare by cutting their spending.
• This reduction in spending depresses the economy as
consumers spend less and businesses react by laying off
workers.
• As a result, families and businesses may end up worse off than if they hadn’t tried to act responsibly by cutting their spending.

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Why Macroeconomics Matters
• Cultural Literacy
wability to follow and participate in
public debates and discussions
wability to understand news reports on
changes in the economy
Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Why Macroeconomics Matters
• Self-Interest
weffects of the macroeconomy on our
daily lives
wunderstanding of changing
opportunities as the economy
fluctuates

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Why Macroeconomics Matters
• Civic Responsibility
wmore informed voting
wmore responsible macroeconomic
policy

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Influential Macroeconomic Events
• The first and most important macroeconomic event
was the Great Depression of the 1930s.
w Between 1929 and 1933, a $1,000 investment in
the stock market fell to a value of $150.
w Massive bank failures and unemployment rates
approaching 25% devastated the American
economy, with similar downturns spreading all
over the world.
w Business investment dropped from nearly 18%
of gross domestic product in 1929 to under 4% in
1933.
Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

The Effect of the Depression
• Before the Depression, it was assumed that labor,
capital, and output markets would keep the economy
near full employment, with small fluctuations in wages,
prices, and interest rates helping the economy to
adjust to disruptions.
w The Depression forced economists to reconsider this view of capitalist economies.

• British economist John Maynard Keynes led the
profession in providing an explanation for periods of
prolonged unemployment.

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Depression Puzzle
• Herbert Hoover(1930) The fundamental assets of
the nation has been unimpaired….The gigantic
equipment and unparalled organisation for
production and distribution are in many parts even
stronger than two years ago”
• Franklin Roosevelt( 1933) Our distress comes from
no failure of substance. We are stricken by no
plague of locusts, Plenty is at our doorsteps but a
generous use of it languishes in the very sight of the
supply.

Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Keynesian Diagnosis
• Keynes - Failure in the immaterial devices of the
mind - Psychology and expectations
w For some reason people had got it into their heads that
the economy is in trouble and they need to save to
prepare for the future.

• Actual output remained short of potential because
of shortfall in demand.
• It is the governments’ responsibility to manage
demand through monetary and fiscal policy
Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Response to Depression
• Enactment of the Glass Steagall Act in 1933.
• Enactment of FDIC Act. Concept of Deposit
Insurance was introduced.
• Repealing of Glass Steagall Act by the Gramm–
Leach–Bliley Act (GLB), also known as the Financial
Services Modernization Act of 1999.
• The GLB Act of 1999 allowed commercial banks,
investment banks, securities firms, and insurance
companies were allowed to consolidate.
• Many think repealing of the Glass Steagall Act was
responsible for great Financial Crisis of 2007.
Macroeconomic Analysis and Policy
PDF created with pdfFactory Pro trial version www.pdffactory.com

Biswa Swarup Misra

Cite This Document

Related Documents

  • Macroeconomics

    ... What macroeconomic policy prescriptions/strategies would you recommend for Belize in an effort to foster economic growth and development? One characteristic that developing countries’ economies share is vulnerability. Belize is small in size, prone to natural disasters and environmental fragility. Belize also has an open economy with a hi...

    Read More
  • Understanding Macroeconomics

    ...Recessions: periods of falling real incomes and rising unemployment Depressions: severe recessions (very rare) Short-run economic fluctuations are often called business cycles FACTS: 1. Economic fluctuations are irregular and unpredictable. 2. Most macroeconomic quantities fluctuate together. 3. As output falls, unemployment ris...

    Read More
  • Macroeconomic objectives

    ...Macroeconomic objectives Explain the Government’s various macroeconomic objectives and their importance to UK economy. Is it possible for government to achieve all these objectives at the same time? 1. Define macro economics (Compare with micro) 2. Macroeconomic objectives:Assessing importance List :(discuss indiv...

    Read More
  • Difference Between Microeconomics and Macroeconomics

    ...There are differences between microeconomics and macroeconomics, although, at times, it may be hard to separate the functions of the two. Microeconomics and macroeconomics are the two major categories within the field of economics. Microeconomics is the branch of economy, especially such topics as markets, prices, industries, demand, and supply....

    Read More
  • Three Major Macroeconomic Goals

    ...Assignment 2 The three major macroeconomic goals of an economy should be economic growth, low unemployment/full employment, and low inflation rates. Economic growth occurs when an economy ‘increases its ability to produce goods and services’ (AmosWeb, 2012). The growth or loss of the economy is measured by the production of goods made in a ...

    Read More
  • Macroeconomic Performance of Turkey

    ...Macroeconomics is the study of how a national economy works with a view to understanding the interaction between growth in national income ,employment and inflation. It also looks at balance of trade and the rate of exchange. Most national governments have four main objectives for their national economies. These are; achieve a low and stable rat...

    Read More
  • Microeconomics vs Macroeconomics

    ...Economics and financial management consist of two major components: microeconomics and macroeconomics. These two components are interchangeable and act as the foundation to the core concepts to understanding the enormous arena of the financial world. Macroeconomics can be defined in several business terms, but simple put, it is the branch of eco...

    Read More
  • Macroeconomic - Government Policies in Reducing Inflation and Unemployment

    ...MACRO-ECONOMIC | Discuss the role of government policy in reducing unemployment and inflation. In your discussion make use of the diagrammatic representation of the macroeconomy developed in lectures in Term 2 | Unemployment and inflation are factors that have negative effects on the performance of the economy as a whole. Therefore, pol...

    Read More

Discover the Best Free Essays on StudyMode

Conquer writer's block once and for all.

High Quality Essays

Our library contains thousands of carefully selected free research papers and essays.

Popular Topics

No matter the topic you're researching, chances are we have it covered.