Micro Economics

Macro Economic System and its Management.

1. Macro Economic Concerns:

• Micro vs Macro Economics.

• Major Building Blocks of Macro Economics: 1) AD & AS 2) Four Sectors: HHS, BS, GS & FTS 3) Two Markets: Commodity Market and Money Market.

• Specific issues to be addressed in Macro Economics: o Rising Prices o Rising Unemployment o Falling GDP o Balance of Payments Crisis.

• Tools of Macro Economic Policy and Management: o Fiscal Policy o Monetary Policy o Other Policies: Trade, Price and Labour Policies.

2. The Key Macro Economic Concepts:

• Aggregate Supply (AS) Curve:

o Describes, for each given price level, the quantity of output firms are willing to supply.

o AS: Upward Sloping ( Firms willing to supply more output at higher prices.

P

AS

O Y Output

o ADC: Shows the combinations of the price level and level of output at which the goods and money markets are simultaneously in equilibrium.

o ADC: Downward Sloping ( At higher prices, reduction in the Value of money supply, demand for output is reduced.

P

AD O Y Output

o Equilibrium level of output and the equilibrium price level.

AS

P0 E

AD

O Y Y0 Output P0 = Equilibrium Price Level Y0 = Equilibrium Level of Output.

o Shifts in ADC and ASC:

Case 1: A Rightward shift in ADC due to an increase in nominal money stock.

AS

P1 E1 P0 E AD1 AD

O Y Y0 Y1 Output

❖ Observe