This document provides an introduction to basic macroeconomics terminology and concepts. It defines macroeconomics as focusing on the large picture of the overall economy, while microeconomics examines individual markets and economic actors. Key terms explained include inflation, recession, GDP, fiscal and monetary policy tools, and business cycles. GDP is discussed as a measurement of economic growth, and the relationships between actual, potential, nominal, and real GDP are outlined.

1. BASIC INTRODUCTION TO
MACROECONOMICS, TOOLS AND
TERMINOLOGIES
By- Rhit Srivastava
MBA –PM(05)
IIHMR

2. Economics
• Economics is the social science that studies
economic activity to gain an understanding of
the processes that govern the production,
distribution and consumption of goods and
services in an exchange economy

3. Types of economics
• Macro economics :
Concentrate on large picture of economy.
• Microeconomics:
• Microeconomics deals with behavior of individual market and the business,
consumer investors and worker that make up the economy.

4. Basic Macroeconomics Terminology
• Inflation:
 An upward movement of prices from one year to the next year.
 Measured by % change in price indices.
 Consumer price index:
Calculated by pricing a basket of goods & services purchased by a typical
household.
Includes prices of items like food, clothing ,shelter ,fuel ,transportation &
college tuition.
 Producer price index: Based on a number of raw material.
 GDP Deflator

5. • RECESSION :
The unemployment rate = no. of unemployed persons/ no. pf people in the
labor force

6. THE RATE OF ECONOMICS GROWTH
• Measured by GDP.
• GDP: Market value of the final goods & services
produce in a country.
• GDP MEASUREMENT:
 Flow of product approach/expenditure approach:
Product consumed by household + investment
expenditure by business + Government purchase +
net export( import-export)

7. • Flow of cost approach :
• Wages of workers + Rent property owner +
Interest for lenders + Profits for firms.
• Actual vs. Potential GDP:
What we can
produce
What a economy can maximum
produce without causing
inflation

8. • Actual GDP < POTENTIAL GDP
RECESSIONARY RANGE OF ECONOMY
• ACTUAL GDP> POTENTIAL GDP
RISK OF INFLATION
 NOMINAL VS. REAL GDP:
MEASURED IN
MARKET
PRICES, CAN
NOT BE CHANGE
NOMINAL GDP
ADJUSTED BY
INFLATION

9. • GDP DEFLATOR:
• NOMINAL GDP/ REAL GDP
• (another valuable inflation index besides cpi n ppi)
BUSSINESS CYCLE & ECONOMIC GROWTH :
• Recurring ups and down in real gdp over several years.
• Forecasting a B-cycle is an important part of success managing
an organization on investment portfolio.
• Forecasting : To identify the forces behind the movement of b-
cycle.
• Forecasting allow to plan about production and inventory.
• Forecasting decreases risk in business cycle.

11. • Macroeconomics tools:
Fiscal policy tools:
• To fight recession:
- Stimulate the economy :
• To fight inflation :
- Contract economy:
Government spending
Tax cut
Government spending
Tax cut

12. Monetary policy tools :
Increase money
supply
decrease money
supply
Stimulate economy
to fight recession
contract economy to
fight inflation

13. Other terminologies
• Fiscal deficit : When a government's total expenditures exceed
the revenue that it generates (excluding money from borrowings).
Deficit differs from debt, which is an accumulation of yearly deficits.
• Disposable income: The amount of money that households have
available for spending and saving after income taxes have been
accounted for.
• Per capita income: Also known as income per person, is the mean
income of the people in an economic unit such as a country or city.
• Subsidy: A subsidy is a form of financial or in kind support extended
to an economic sector (or institutions, business, or individual)
generally with the aim of promoting economic and social policy.