overview of macro, nd details

1. Overview of Macroeconomics

2. Course Content
 Overview of Macroeconomics
 Measuring National Income/output
 AD and AS curves – an introduction
 Aggregate Demand and multiplier
 Product market equilibrium
 Money market equilibrium
 Aggregate supply
 General equilibrium using AD and AS curves
Economic instability and fluctuations – Business cycles

3. Course Content
 Unemployment and price instability
 Case on The Indian Economy:
 Dealing with Inflation
 Monetary policy and the role banking system
 Fiscal policy and instruments
 Open economic framework
 Case on The US-China Exchange Rate Stand-Off
 Business environment in Indian context

4. Evaluation
Evaluation Weightage Evaluation Component
Continual
Evaluation
Pre Mid- Semester 15 % Individual Assignments (To be submitted by week
6)
Mid Semester
Examination
20 % Written Examination
Pre and Post Mid
Semester
15 % Mini Projects (Group presentations )
Group 1 & 2 : Week 7
Group 3 & 4 : Week 8
Group 5 & 6 : Week 9
Group 7 & 8 : Week 10
Group 9 &10: Week 11
Case evaluation 10 % Analysis of article/Case Study ( In week 12)
Comprehensive
Evaluation
End Semester
Examination
40 % Written Examination

5. Learning Outcomes
Upon completion of this session, participants should be
able to:
 Understand the difference between micro and macro
economics
 Define the goals of macro economic policy
 State the instruments of Macroeconomics or policy tools

6. Microeconomics and Macroeconomics
Microeconomics is the study of how households and firms
make decisions and how they interact in markets.
Macroeconomics is the study of economy-wide phenomena,
including inflation, unemployment, and economic growth.
In microeconomics, we used the theories of supply and
demand. In macroeconomics, we use the theories of
aggregate demand (AD) and aggregate supply (AS)

7. Microeconomics and
Macroeconomics
Macroeconomics, the study of the economy as a whole, addresses
many topical issues:
•Why does the cost of living keep rising?
•Why are millions of people unemployed, even when the economy
is booming?
•What causes recessions? Can the government do anything to
combat
recessions?
• What is the government budget deficit? How does it affect the
economy?

8. Goals of Macroeconomic Policy
In thinking about the macro economy's overall health, it is
useful to consider three primary goals:
1. Economic growth,
2. Low unemployment, and
3. Low inflation

9. Goals of Macroeconomic Policy
Economic growth:
• Economic growth ultimately determines the prevailing
standard of living in a country.
• Economists measure growth by the percentage change in
real (inflation-adjusted) gross domestic product.

10. Goals of Macroeconomic Policy
Low unemployment :
• Unemployment, as measured by the unemployment rate, is the
percentage of people in the labor force who do not have a job.
• When people lack jobs, the economy is wasting a precious
resource-labor, and the result is lower goods and services
produced.
• While measured unemployment is unlikely to ever be zero,
economists consider a measured unemployment rate of 5% or less
low (good).

11. Goals of Macroeconomic Policy
Low inflation :
• Inflation is a sustained increase in the overall level of
prices, and is measured by the consumer price index.
• If many people face a situation where the prices that they
pay for food, shelter, and healthcare are rising much faster
than the wages they receive for their labor, there will be
widespread unhappiness as their standard of living declines

12. Policy Tools
National governments have two tools for influencing the
macro economy:
1. The first is monetary policy, which involves managing the
money supply and interest rates.
2. The second is fiscal policy, which involves changes in
government spending/purchases and taxes

13. Few concepts
Stock - a quantity which is measured at a point in time.
Flow- a quantity measured over a period of time
Equilibrium and Disequilibrium- Equilibrium is a state of
balance or a state where there is no change
Static model are those where the relationship between the
different variables relate to the same period in time.
Dynamic models are the models that trace the changes that
occur in the values of the different variables over time.

14. Few concepts
Partial and General Equilibrium
Partial Equilibrium approach involves the determination
of the equilibrium price and output in each market, ceteris
paribus.
General Equilibrium approach involves a state where all
the markets and the decision making units in the economy
are in a simultaneous equilibrium.
.

15. Few concepts
Positive and Normative statement:
As scientists, economists make positive statements, which
attempt to describe the world as it is.
As policy advisors, economists make
normative statements, which attempt to prescribe how the
world should be.
Positive statements can be confirmed or refuted,
normative statements cannot.

16. Identifying positive vs. normative
Which of these statements are “positive” and which are
“normative”? How can you tell the difference?
a. Prices rise when the government increases the quantity of
money.
b. The government should print less money.
c. A tax cut is needed to stimulate the economy.
d. An increase in the price of burritos will cause an increase in
consumer demand for video rentals.

17. Identifying positive vs. normative
a. Prices rise when the government increases the quantity of money.
Positive – describes a relationship, could use data to confirm or
refute.
b. The government should print less money.
Normative – this is a value judgment, cannot be confirmed or
refuted.
c. A tax cut is needed to stimulate the economy.
Normative – another value judgment.
d. An increase in the price of burritos will cause an increase in consumer
demand for video rentals.
Positive – describes a relationship.
Note that a statement need not be true to be positive.