Details of Macro Economics

1. Prepared By
Prof Ashwitha S Shetty
Kristu Jayanti College
Bangalore

2. MACRO-ECONOMICS
• Macroeconomics looks at the
economy as an whole.
• Macro-economics studies economic
aggregates such as: total output,
total demand, aggregate income,
total savings, total investment,
total employment, rise and fall in
general price level, interest rates.

6. IMPORTANCE OF MACRO ECONOMICS
• Functioning of an Economy:
• Formulation of Economic Policies:
• Analysis of Monetary Problems
• Understanding the Behavior of Individual Units
• Study of Economic Development
•

7. LIMITATION OF MACRO ECONOMICS
• It Ignores the Welfare of the Individual
• Measurement of aggregates is difficult
• Macro economics is based on the
aggregates and aggregates are drawn
are drawn on the individual units
• It considered aggregates as
homogeneous.
• Conclusions are often misleading

9. MACRO-ECONOMICS VERSUS
MICRO-ECONOMICS

10. DIFFERENCE BETWEEN MICRO AND MACRO
ECONOMICS
Micro Economics Macro Economics
Microeconomics studies individual economic units Macroeconomics studies a nation’s economy, as well as
its various aggregates
Microeconomics primarily deals with individual income,
output, price of goods, etc.
Macroeconomics is the study of aggregates such as
national output, income, as well as general price levels
Microeconomics focuses on overcoming issues
concerning the allocation of resources and price
discrimination
Macroeconomics focuses on upholding issues like
employment and national household income
Micro economics study is what will be the consequence
of increase in salary of an Individual will have on his or
her purchasing power
Macro Economics study what will be the consequence
of higher inflation on growth of the economy.
Microeconomics accounts for factors like demand and
supply of particular commodity
Macroeconomics account for the aggregate demand
and supply of a nation’s economy
Microeconomics studies the particular market segment
of the economy
Macroeconomics studies the whole economy, that
covers several market segments

17. A. On the basis of speed
• Creeping Inflation
• Walking Inflation
• Running Inflation
• Hyper Inflation

18. B. ON THE BASIS OF TIME
• Peace time Inflation
• War-time Inflation
• Post-war Inflation

19. C. On the basis of inducement
• Wage – induced Inflation
• Profit- Induced Inflation
• Deficit- Induced Inflation
• Currency- Induced Inflation

20. D. On the basis of action taken
• Open inflation
• Suppressed Inflation

21. E. On the basis of economic factors of demand
and supply
• Demand Pull Inflation
• Cost Push Inflation

23. CAUSES OF INFLATION
• Increase in Money Supply
• Increase in Government Expenditure
• Increase in Disposable Income
• Increase in Consumer Expenditure
• Increase in Private Investment
• Foreign Demand
• Population growth
• Shortage of Factor Inputs
• Strikes and Lockout
• Increase in Wages

25. EFFECTS OF INFLATION
On Production
Other Effects

26. A. ON PRODUCTION
• It affect the volume of production badly
• It brings about a fall in the quality of
commodities
• Inflation causes misallocation of
recourses
• Inflation brings hoarding and black
marketing into existence
• Inflation brings in speculation

27. B. ON DISTRIBUTION
• Inflation brings about inequalities in
income and wealth distribution
a. Business man
b. Debtors
c. Creditors
d. Salary Earners
e. Investment on Shares
f. Farmers
g. Consumers

28. C. CONSUMPTION
• Consumers are buying less
often
• Buying interests are changing
• Consumption get reduced

32. A. MONETARY MEASURES
• Monetary measures aim at reducing money
incomes.
• It helps to control the money supply in the
economy
1. Credit Control
a. Quantitative Measures
b. Qualitative Measures
2.Demonetisation
3. New Currency

33. 1. CREDIT CONTROL
This is the most important
monetary policy of the central
Bank
a. Quantitative Measures
b. Qualitative Measures

34. a. Quantitative measures
• Raising the Bank Rate
• Open Market Operations
• Raising the reserve ratio

35. b.Qualitative measures
• Raising Margin Requirements
• Regulating Consumer Credit
• Publicity
• Directives
• Direct Action

36. 2.DEMONETISATION
• the withdrawal of a coin, note, or
precious metal from use as legal tender
• To discourage the use of high-
denomination notes for illegal
transactions and thus curb the
widespread use of black money is the
aim of Demonetization

37. 3. NEW CURRENCY
• This is an extreme anti-
inflationary measure
• Here old currency notes are
replaced by new notes
• This method is adopted when
the rate inflation is very high

38. B. FISCAL MEASURE
• The Fiscal Measures to Control Inflation is
comprised of government expenditure, public
borrowings, and taxation
• A country’s fiscal policy has two essential
components – Government revenue
and expenditure.
• Take steps to decrease the overall Government
expenditure and transfer payments
• Increase the rate of taxes causing individuals to
decrease their total expenditure, leading to a
decrease in demand and a drop in the money
supply in the economy.

39. Important fiscal measures
• Reduction in Government
Expenditure
• Increase in Tax
• Increase in Savings
• Public Debt
• Surplus Budget

40. DEFLATION
• Deflation is a decrease the prices of goods and
services, thereby increasing the purchasing power
of consumers and domestic currency.
• Deflation can cause lower profits for firms, thereby
increasing unemployment.
• low consumer spending due to lower money
supply decreases demand; therefore, the supply of
goods outpaces demand, causing depression in
the economy.
• due to lower demand, unemployment tends to rise,
as firms have to lay off workers.

41. Unemployment
• Unemployment, the condition of one who is capable of working,
actively seeking work, but unable to find any work.
• Unemployment—people who are jobless, actively seeking work, and
available to take a job
• Unemployment is the inability of labor-force participants to find jobs.

43. A. SEASONAL UNEMPLOYMENT
• Seasonal unemployment is the
unemployment due to seasonal
changes in employment or labor
supply.
• Season unemployment can affect
farm workers, Christmastime retail
workers, and other jobs without
year-round production

44. B. FRICTIONAL UNEMPLOYMENT
• Frictional unemployment is the
brief periods of unemployment
experienced by people moving
between jobs or into the labor
market.

46. C. STRUCTURAL UNEMPLOYMENT
Structural unemployment is the
unemployment caused by a mismatch
between the skills (or location) of job
seekers and the requirements (or location)
of available jobs.

48. D. CYCLICAL UNEMPLOYMENT
• Cyclical unemployment is the
unemployment attributable to the lack
of job vacancies – i.e., to an inadequate
level of aggregate demand.
• Usually, the economy will return to a
normal level on its own, but in extreme
examples (e.g. The great depression),
government help is needed to alleviate
cyclical unemployment.

50. MEANING
• A business cycle, sometimes called a "trade
cycle" or "economic cycle," refers to a series of
stages in the economy as it expands and
contracts.
• It is primarily measured by the rise and fall of
gross domestic product (GDP) in a country.
• The Business Cycle allows people to understand
the direction the economy (GDP) is going
(growing or shrinking) and plan accordingly.

52. 1. Depression
• The depression stage begins once the GDP
falls below the pre-expansion level or the
steady growth line.
• depression shows sharp fall in the production ,
increase in the mass unemployment
• depression, in economics, a major downturn in
the business cycle characterized by sharp and
sustained declines in economic activity

53. During a period of depression
• Businesses cut back production
and layoff people
• Unemployment increases
• Number of jobs decline
• People are pessimistic (negative)
and stop spending money
• Banks stop lending money
• Many firm will be close down on
account of accumulated losses.

54. 2. TROUGH
• A trough is the stage of the economy's
business cycle that marks the end of a
period of declining business activity
and the transition to expansion.
• The GDP has stopped declining and
has begun to increase.
• After the trough, the economy moves
to the stage of recovery
• The trough phase-- it's the lowest
point in economic contraction and
real GDP stops falling.

55. 3. Recovery or revival
• Recovery shows the upturn of the output and
employment of the economy from the state of
depression
• Recovery is most probably the result of the fresh
demand for plant and equipment arising from the
consumer goods industries which had been
postponing this investment during depression.
• Although prices remain more or less stable, wages
and other incomes show a noticeable rise.

56. During a period of Recovery
• Rays of hope appears in the mind of business
people
• Pessimism which was seen in the every walk of life
during the initial period of depression will vanish
• The business people will now find that situation
better to start production
• Industry production picks up very slowly and
gradually
• Money is cheap and also raw materials
• Banks also starts functioning seriously.

57. 4. Prosperity or expansion
• The initial revival which was started in a humble
way, picks up the speed and is now
strengthened by numerous developments
• The period of expansion may last for five to six
years
• The expansion goes on without interruption
and all those unemployed men and materials
are absorbed in economic activities

58. DURING A PERIOD OF EXPANSION
• Wages increase
• Low unemployment
• People are optimistic and spending
money
• High demand for goods
• Businesses start
• Easy to get a bank loan
• Businesses make profits and stock prices
increase

59. 5. Boom or overfull employment
• Boom is the final stage of a business cycle
where the business activity expands very
rapidly.
• It is the stage of rapid expansion in
business activity to new high marks
resulting in high stocks and commodity
prices, high profits and over full
employment
• As investors become more confident,
expanding productive activity takes the
economy to a boom or prosperity phase.

60. DURING A PERIOD OF BOOM
• Money wages rise, Profit increase and
interest rates also go up
• The demand for bank credit also
increases
• Industrialists increase investment
activity
• The bank also meet their capital
requirements at higher rates of
interest
• The resource owners also increase
price of resources.

61. 6. Recession
• It is a turning point from boom condition
where prosperity ends and recession begins.
• When profits are decreasing the businessmen
stop orders for capital goods
• The banks who had given loans liberally now
demand for repayment
• Prices starts collapsing
• There recession refers to a situation where
there is a decline in overall business activity

62. During a period of recession
• There is a fall in the level of income and
output
• Unemployment starts increasing
• There is a fall in income, expenditure, prices
and profit
• Decline in bank credit

63. THANKS…