Macro Economics

1. Macroeconomics

2. • Macroeconomics
• Economic theory can be classified into two such as
microeconomics and macro economics. The word ‘macro’ has
been derived from the Greek word ‘makros’ meaning ‘large’.
• Macro economics studies the economy as a whole. It describes the
aggregates in the economy such as general price level, aggregate
demand, total employment, aggregate output, aggregate
employment, inflation etc. Therefore, Macro economics is also
known as Aggregate Economics. It studies the economic
fluctuations. The method of analysis of macro economics is
general equilibrium analysis. Macro economics is also known as
income theory.

3. • Emergence of Macro Economics
• Macroeconomics, as a separate branch of economics,
emerged after the British economist John Maynard Keynes
published his celebrated book “The General Theory of
Employment, Interest and Money” in 1936. The dominant
thinking in economics before Keynes was that all the
labourers who are ready to work will find employment and
all the factories will be working at their full capacity. This
school of thought is known as the classical tradition.
However, the Great Depression of 1929 and the subsequent
years saw the output and employment levels in the countries
of Europe and North America fall by huge amounts.

4. •It affected other countries of the world as well. These
events made economists think about the functioning
of the economy in a new way. The fact that the
economy may have long lasting unemployment had to
be theorized about and explained. Keynes book was
an attempt in this direction. Unlike his predecessors,
his approach was to examine the working of the
economy in its entirety and examine the
interdependence of the different sectors. The subject
of macroeconomics was born.

5. •Scope of Macroeconomics
• The major study areas of macroeconomics are:
•national income
• employment
• monetary theory
•general price level
• business cycle
•economic growth
• macro distribution theory
• international theory

6. • Importance of Macro Economics
• Information about economy: Macro economics provides insight
into various interrelated aspects and the functioning of the
economy.
• Formulation of economic policy: Macro economics plays a
critical role in the formulation of economic policies.
• Economic planning: The main objective of economic planning is
to implement various policies and programmes for the welfare of
the people on priority basis. Macro economic helps the
economists to examine the interrelationship between various
macroeconomic variables and choose the programmes best suited
for the welfare of the people.

7. • Examine the economic fluctuations: Macro economics examine
various fluctuations in different variables such as national income,
aggregate output, trade deficit, investment etc.
• Economic growth: Macro economics supplements various economic
tools for measuring the economic growth.
• In Micro economics: Both Micro and Macro economics are highly
interrelated. However, the holistic view of an economy can only be
presented through macro economics.
• Inflation of deflation: The trends and patterns of inflation and
deflation can be examined through analyzing aggregate demand and
aggregate supply situation of an economy.
• Assessing the welfare: Macro economics provides necessary tools
for assessing the welfare of the people in an economy.

8. • Major Sectors of The Economy
• Four major sectors of the economy are:
1.firms
2.households
3.government
4.external sector

9. • 1. FIRMS : Tiny production units in an economy is called firms.Their
main motive is to produce goods and services and to sell in market to
earn profit.
• 2. HOUSEHOLD: A single Individual or group of individuals who
takes decisions related to consumption. They consume, save and also
pay taxes.
• 3. GOVERNMENT:It is the regulatory body of the economy. The
role of the government is framing laws, enforcing them and
delivering justice.
• 4. EXTERNAL SECTOR: If refers to the economic transaction of the
domestic economy with the rest of the world. The domestic country
may sell goods to the rest of the world. If is called export. The
domestic country may buy goods from the rest of the world. If is
called import.

10. •LIMITATIONS OF MACRO ECONOMICS:
Macro Economics suffers the following limitations.
1. It cannot be applied to explain individual behaviour.
2. Conclusions drawn from Macro economic analysis maybe
misleading.
3. Macro economics deals with aggregates. Aggregates may be
approximation of realities.
4. Most Macro Economics magnitudes are subject to errors and
ambiguities.

11. 1. “ Modern Macro Economics is the offshoot of the Great Depression
of 1929”. -Write any three points to support the statement.
2. Who is known as the father of Modern Macro Economics?
A. Adam Smith. B. Alfred Marshall C. J.M.Keynes. D. J.B.Say
3. Classify the following under the heads Micro and Macro
Economics.
• Government regulations on auto emissions.
• Price elasticity of refrigerators
• A family’s decision about how much income to save.
• The impact of Higher National Savings on Economic growth.

12. 4. Macro Economics is also known by the name
A. Price theory. B. Theory of Income and Employment. C. Demand
theory. D. Cost theory.
5. Classify the following into Micro and Macro Economics.
National saving rate, Wage rate of a worker, Average Cost, Inflation.
6. What are the major sectors in an economy according to Macro
economic point of view?