Macro Economics

2. A FRAME WORK OF MACRO ECONOMICS
PRESENTED To:
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Zaffar Gujjar roll# 09
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3. MACRO ECONOMICS
 Macro economics is largely concern with the
behavior of economic aggregate.
E.g.
1.Total national product
2.Total investment
3.Exports of entire economy
 It is also concern with the avg. price of all goods
rather than the price of specific products.

4. These aggregate results from activities in
many different market and from the behavior of
different decision makers e.g
 consumers , government and firms.
In macro we add together value of wheat ,
cotton ,mangoes ,computer , along with the
value of all other goods and services produced.
Note: In macro economics we study the
aggregate national product, average the price of
all goods and services and consumed and
discuss the general price level for the entire
economy usually called price level.

5. Macroeconomic Variables?
Macroeconomic variables are those variables
that are independent from the income levels.
They are factors that greatly influence the
economic growth. Some of the macroeconomic
variables include:
1.GDP,
2.Unemployment
3.Inflation.

6. Gross domestic product
Gross domestic product (GDP) is the market value
of all officially recognized final goods and services
produced within a country in a year, or other given
period of time.
Components of GDP by expenditure
GDP (Y) is a sum of Consumption (C), Investment
(I), Government Spending (G) and Net Exports (X
– M).
Y = C + I + G + (X − M)

9. What is the difference between a recession and a
depression?
Recession period:
“Mild fall in G.D.P”
Depression period:
“Severe fall in G.D.P”

10. INFLATION
 The inflation rate measures the percentage
change in the average level of prices from the
year before . when inflation is above zero,
prices are rising. when it is below zero, prices
are falling .
 If the inflation rate declines but remains
positive, prices are rising but at slower rate.

12. UNEMPLOYMENT
 Unemployment occurs when a person who is
actively searching for employment is unable to
find work.
 in simple words we can say measure the
friction of labor force that is out of work is
called unemployment.

14. ECONOMIC MODEL
 Economic model is made of symbols and
equation. Economists build their economic
model to express the economic variables.
 E.g. G.D.P , Inflation and unemployment.
Economist make models, assume some thing
and critically study them.

15. THERE ARE TWO VARIABLES OF ECONOMIC
MODEL
1.Endo-geneous variables:
“are those variables that a model tries to
explain”
Endo-geneous variables are determine with in the
model and serve as the model output.
2.Exo-geneous variables:
are those variables that a model accept as a given
comes from outside the model and serve as a
model input.

16. PURPOSE OF ECONOMIC MODEL
 Is to show how the exo-geneous variables
effects the endo-geneous variables.
 Economic model shows the relationship among
the variables in mathematical terms.

17. MACRO ECONOMIC PROBLEMS:
 Undesirable situations that exist in the macro
economy, largely because one or more of the
macroeconomic goals are not satisfactorily
attained. The primary problems are
unemployment, inflation, and stagnant growth.
Macroeconomic theories are designed to
explain why these problems emerge and to
recommend corrective policies.

18. Unemployment:
Unemployment is a problem because:
Less output is produced and thus the economy
is less able to address the scarcity problem.
The owners of unemployed resources receive
less income and thus have lower living
standards.

19. Inflation is a problem because:
The purchasing power of financial assets such
as money declines, which reduces financial
wealth and lowers living standards.
Greater uncertainty surrounds long-run
planning, especially the purchase of durable
goods and capital goods.
Income and wealth can be haphazardly
redistributed among sectors of the economy
and among resource owners.

20. THE BUSINESS CYCLE
Unemployment and inflation tend to vary with
business-cycle instability. At some times,
unemployment is less of a problem and
inflation is more. At other times, unemployment
is more of a problem and inflation is less.

21. Consider how these two problems connect to the
two primary phases of the business cycle.
Contraction: The contraction phase of a business
cycle is characterized by a general decline in
economic activity. Aggregate demand is less,
meaning less output is produced, and thus fewer
resources are employed. For this reason,
unemployment tends to be a key problem.
However, because markets are more likely to
have surpluses than shortages, inflation tends to
be less of a problem.

22. Expansion: The expansion phase of a business
cycle is characterized by a general rise in
economic activity. Aggregate demand is higher,
production is greater, and more resources are
employed. Demand for production often
outpaces the ability to supply the production.
Under these circumstances, because markets
are more likely to have shortages than
surpluses, inflation tends to be the primary
problem. However, with robust production and
jobs aplenty, unemployment tends to be less of
a problem