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    Macro Economics: Basics by Vyas

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    shashank vyas
    Macroeconomics studies the behavior of the overall economy, including output, employment, prices, and trade. It explains relationships between macroeconomic variables and provides insights into the working of the economy to inform policymaking. Classical economics viewed the economy as naturally achieving full employment equilibrium through market forces. Keynesian economics saw unemployment as caused by lack of aggregate demand, which could be addressed through government spending. Later developments included monetarism emphasizing money supply, supply-side economics focusing on tax cuts, and neo-Keynesianism arguing markets do not always clear due to individual behaviors.

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    Macro Economics: Basics by Vyas

    Uploaded by

    shashank vyas
    48 views21 pages
    Macroeconomics studies the behavior of the overall economy, including output, employment, prices, and trade. It explains relationships between macroeconomic variables and provides insights into the working of the economy to inform policymaking. Classical economics viewed the economy as naturally achieving full employment equilibrium through market forces. Keynesian economics saw unemployment as caused by lack of aggregate demand, which could be addressed through government spending. Later developments included monetarism emphasizing money supply, supply-side economics focusing on tax cuts, and neo-Keynesianism arguing markets do not always clear due to individual behaviors.

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    BASICS and INTRODUCTION

    Original Title

    Macro

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    Macroeconomics studies the behavior of the overall economy, including output, employment, prices, and trade. It explains relationships between macroeconomic variables and provides insights into the working of the economy to inform policymaking. Classical economics viewed the economy as naturally achieving full employment equilibrium through market forces. Keynesian economics saw unemployment as caused by lack of aggregate demand, which could be addressed through government spending. Later developments included monetarism emphasizing money supply, supply-side economics focusing on tax cuts, and neo-Keynesianism arguing markets do not always clear due to individual behaviors.

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    48 views21 pages

    Macro Economics: Basics by Vyas

    Uploaded by

    shashank vyas
    Macroeconomics studies the behavior of the overall economy, including output, employment, prices, and trade. It explains relationships between macroeconomic variables and provides insights into the working of the economy to inform policymaking. Classical economics viewed the economy as naturally achieving full employment equilibrium through market forces. Keynesian economics saw unemployment as caused by lack of aggregate demand, which could be addressed through government spending. Later developments included monetarism emphasizing money supply, supply-side economics focusing on tax cuts, and neo-Keynesianism arguing markets do not always clear due to individual behaviors.

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    You are on page 1of 21

    MACRO ECONOMICS

    BASICS by VYAS
    Macro Economics
    • “Macroeconomics is the study of the behaviour of the economy as a whole.
    It examines the overall level of a nation’s output, employment, prices, and
    foreign trade.”
    P. A. Samuelson
    Macroeconomics as a Theoretical Science

    • Explains the behaviour of macroeconomic variables and specifies the nature of


    relationship between them;

    • Provides an insight into, the working of the economy; and

    • Is a necessary condition for the formulation of appropriate macroeconomic


    policies to achieve predetermined goals.
    3
    Macroeconomics as a Policy Science
    • Provides a sound theoretical framework for investigating the causes and effects of
    economic problems;

    • Provides guidelines for finding appropriate policy measures to solve the problem,
    and

    • Analyses the working and effectiveness of macroeconomic policies, especially the


    monetary and fiscal policies, on the economy.

    4
    Origin and Growth of Macro Economics
    • The Classical Macro Economics

    • The Keynesian Revolution

    • The Post-Keynesian Developments


    The Classical Macroeconomics
    • According to classical school of thought, if market
    forces of demand and supply are allowed to work freely,
    then

    i. there will always be full employment in the long run, and


    unemployment, if any, will be a short-run phenomenon;
    ii. there will be neither over-production nor under-production at the
    aggregate level; and
    iii. the economy will always be in equilibrium in the long run.

    6
    The Keynesian Revolution
    • The level of output and employment in an economy is determined by the
    aggregate demand given the resources.

    • The unemployment in any country is caused by lack of aggregate demand and


    economic fluctuations are caused by demand deficiency.

    • The demand deficiency can be removed through compensatory government


    spending.

    7
    Post-Keynesian Developments in
    Macroeconomics
    • Monetarism: A Counter Revolution,

    • Neo-classical macroeconomics,

    • Supply-side economics, and

    • Neo-Keynesianism.
    8
    Monetarism
    • According to the Monetarists, the role of money is central to the growth
    and the stability of national output
    • Money supply is the main determinant of output and employment in the
    short run and price level in the long run
    Neo-classical Macroeconomics
    • The neo-classical school emphasizes the role of individual’s rational
    expectations about future economic events, especially those taking place on
    the supply side of the economy and expectations about future government
    policies.
    Supply-side Economics
    • Supply-side Economics is led by Arthur Laffer.

    • Emphasis is on the role of factors operating the supply


    side of market.

    • Laffer Curve: a cut in the tax rate shifts aggregate supply


    curve rightward and leads to a rise in output and
    employment
    Neo-Keynesianism
    • Neo-Keynesianism argues that the market does not clear always, in spite of
    individual (household, firms and labor) working for their own interest.
    Importance of Macroeconomics
    • Persistence of macroeconomic problems
    • Growing complexity of economic system

    • Need for government intervention with the market system


    • Use of macroeconomics in business management

    13
    Source: THE ECONOMIC TIMES, 9 January, 2018
    Source: THE ECONOMIC TIMES, 9 January, 2018
    Source: THE ECONOMIC TIMES, 9 January, 2018
    Source: THE ECONOMIC TIMES, 9 January, 2018
    Two-Sector Model
    Two-Sector Model with Capital Markets
    Three- Sector Model
    Four-Sector Model

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