This document provides an introduction to macroeconomics. It defines macroeconomics as the branch of economics that studies aggregate economic indicators and performance of the overall economy. It discusses the meaning, features, scope, importance, and types of macroeconomics including simple macrostatic, comparative macrostatic, and macrodynamic models. It also outlines some key macroeconomic public goals and common macroeconomic problems.

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Introduction to
Macroeconomics
By
Chetan Acharya
A Lecture Presentation
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Meaning of
Macroeconomics
Definition: Macroeconomics is the branch of economics that studies the
behavior and performance of an economy as a whole. It focuses on the
aggregate changes in the economy such as unemployment, growth rate, gross
domestic product and inflation.
Description: Macroeconomics analyzes all aggregate indicators and the
microeconomic factors that influence the economy. Government and
corporations use macroeconomic models to help in formulating of economic
policies and strategies.
The term Macro is derived from Greek word “Makros” which means
“large”. It is the branch of economics, which studies the behaviour of
all economic units combined together. Macro-economics is a study of
aggregates. It is the study of the economic system as a whole. It is the
study of the economy in totality.
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Features of
Macroeconomics
 It is the study of the economy in totality.
 It uses lumping method for the purpose of economic study. Under
lumping method the general price level is studied, and not prices of
individual products.
 It concerns with the behavior of aggregates.
 It is a general equilibrium analysis in which everything depends on
everything else. For instance, a change in income level may results
in change in savings, which in turn influence investment.
 Macroeconomics is the obverse of microeconomics.
 Therefore it deals with total or aggregates national income output
and employment, total consumption, saving and investment and the
general price level.
 A bird’s eye view to entire economy
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Scope of Macroeconomics
 Theory of national income
 Theory of employment
 Theory of investment
 Theory of general price level
 Economic growth and development
 Theory of international trade
 Theory of Money
 Theory of business Cycle
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Role/Importance of
Macroeconomics
 Understanding the working of the economy
 Understanding the major issues facing the economy
 Study of national income
 Useful in formulating government's economic policies
 International comparison
 Public policy formulation
 Formulate the strategy of economic growth
 Solution of complex economic problem of modern
times
 Understand general unemployment
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Types of Macroeconomics
1. Simple Macro Static
2. Comparative Macro Static
3. Macro Dynamic
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Simple Macro Static
The concept of Macro Static explains the static
equilibrium position of the economy. This concept is best
explained by Prof. Kurihara in these words: “If the object
is to show a still picture of the economy as a whole, the
macro-static method is the appropriate technique. This
technique is one of investigating the relations between
macro variables in final position of equilibrium without
reference to the process of adjustment implicit in that
final position”.
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Simple Macro Static
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In a static Keynesian model, the level of equilibrium is determined by the
interaction of aggregate supply function and the aggregate demand function. In
diagram OY shows aggregate supply function and C + I line represents aggregate
demand function. The line OY and C + I intersect at point E, which determines
equilibrium level of income at OY1. It simply shows a timeless identity equation
without any adjusting mechanism.

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Comparative Macro Static
Comparative macro statics just compares the different static
situation of any economy at different periods of time. We
know that various macro variables like total consumption,
total investment and total income go on changing with the
passage of time in an economy. As a result, the economy keeps
on reaching different levels of equilibria. Thus, the method of
comparative macro statics involves a comparative study of
different equilibria attained by the economy. But this method
does not detail the process of adjustment as the economy
moves from one equilibrium position to another. In short, it
present only a 'still' picture of the various equlibria reached by
the economy.
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Comparative Macro Static
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In the figure, the economy is in equilibrium at point E1 at
which the equilibrium level of national income is OY1.
Suppose new investment take place by ∆I. This shifts the
aggregate demand curve upward to C+I+∆I. As such, new
equilibrium is established at E2. The comparative analysis
of the two equilibria is comparative macro statics.

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Macro Dynamic
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The word dynamic means changeable. In
economics, ‘dynamic’ refers to the study of
economic change. Economics is thus a
process of change through time. Macro
dynamics refers to the analysis of the dynamic
process through which an economy passes
when the old equilibrium is displaced by a new
equilibrium. It examines the path taken by an
economy in moving from its old equilibrium to
new equilibrium.

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Macro Dynamic
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The above diagram shows that C is the aggregate demand function and 450 degree line is the aggregate
supply function. Suppose we start with the time period t0 where with an equilibrium level of income
OY1, investment increased from I0 to I1, this can be seen by the new aggregate demand function line C +
I + I1.But in period t, consumption lags behind and it is still on the equilibrium point E1. In next period t +
1 consumption increases with the increase in investment, which lead to increase in income from OY1 to
OY2. This is the process of income prorogation which will continue till the aggregate demand function C
+ I + I1 intersects the aggregate function 450 line at point E2 in the nth period. The new equilibrium level
of income is at OYn. The staircase like path from E1 to E2 shows the macro dynamic equilibrium path.

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Macroeconomic Public Goals
1. Full Employment
2. Stable Economic Growth and Development
3. Price Stability
4. International Trade
5. Exchange Rate Stability
6. Equilibrium Balance of Payment
7. Equitable Distribution of Income and
Wealth
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Macroeconomic Problems
1. Unemployment
2. Inflation
3. Business Cycle
4. Stagnant Growth
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