INTRODUCTION

Macro Makros (large)

DEFINATION
According to K.E.BOULDING macroeconomics deals not with individual quantities as such but with the aggregate of these quantities, not with individual incomes but with national income, not with individual output.

FEATURES OF MACROECONOMY
1. 2. 3. 4. Deals with overall economic. Studies economic variable. Wider Scope. Helpful to government policies.

MACROECONOMIC POLICIES
To try to avoid major economic shocks, such as The Great Depression , governments make adjustments through policy changes they hope will stabilize the economy. Governments believe the success of these adjustments is necessary to maintain stability and continue growth. This economic management is achieved through two types of governmental strategies: Fiscal policy Monetary policy

TWO TYPES OF POLICY

Monetary Policy
Fiscal Policy

Monetary policy:
It is the process by which the central bank, government, or any monetary authority of A country controls. Supply of money Availability of money Cost of money
Fiscal policy:

In economic fiscal policy relates to government activity that effect the finance of the economy. Raising/lowering taxes. Raising/lowering budget spending.

CIRCULAR FLOW OF INCOME

Two Sector Model (Without Savings) Two Sector Model (With Savings) Three Sector Model Open Economy

Rent+ Wages + Interest + Profits

Land + Labor + Capital + Enterprise

FACTOR MARKET

Households

COMMODITY MARKET

Firms

Goods & Services

Payment for Goods & Services

TWO SECTOR MODEL (WITHOUT SAVINGS)

MONEY & CAPITAL MARKET

Rent+ Wages + Interest + Profits

Land + Labor + Capital + Enterprise

FACTOR MARKET

Households
COMMODITY MARKET

Firms

Goods & Services Payment for Goods & Services

TWO SECTOR MODEL (WITH SAVINGS)

GOVERNMENT MONEY & CAPITAL MARKET

Rent+ Wages + Interest + Profits Land + Labor + Capital + Enterprise

FACTOR MARKET

Households
COMMODITY MARKET

Firms

Goods & Services Payment for Goods & Services

THREE SECTOR MODEL

GOVERNMENT MONEY & CAPITAL MARKET

Rent+ Wages + Interest + Profits Land + Labor + Capital + Enterprise FACTOR MARKET

Households
COMMODITY MARKET Goods & Services Payment for Goods & Services

Firms

Imports External Factor Export

OPEN ECONOMY

OUTPUT
Capital stock (building, land, equipment) and labor are combined to create goods and service (output) people own capital stock and supply labor. In return they receive income (wages, rent, dividends, interest, royalties). People use this income to purchase goods and service to pay tax and to save for the future.
Measure of output

Supply of demand

Business cycle

Growth

International trade

Saving & investment

MEASURES OF OUTPUT
Gross domestic product (GDP) Real GDP Ney Domestic Product (NDP) Gross National Product (GNP)

Gross domestic product (GDP)

GDP is the total market value of all final goods and service newly produced in a country in a period of time, also equal to the total income earned in a country in a period of time.

Net domestic product (NDP)

NDP is GDP minus depreciation. This measure takes depreciation as an input for output production.

Gross national product or Income (GNP or GNI)

GNP Is The Total Output Produced By A Country Citizens And Firms, Wherever They Produce This Output (Inside Or Outside Their Home Country.) Gnp Is Gdp Plus Income Payments Form Abroad Minus Income Payment To Foreigners.

 GDP Accounting
There Are Several Ways To Calculating GDP, Which Should All Leads To Same Result Methods Includes. o Expenditure Method: Gdp Is The Total Market Value Of All Final Goods And Service Newly Produced In A Country In A Certain Period Of Time. oIncome Method: Gdp Is The Total Income Earned In A Country In A Certain Period Of Time.

OUTPUT DEMAND
The Demand For A Countrys Output Depends On The Level Of Consumption, Government Spending Investment, Export And Imports. Current Consumption Depends On How Much Income People Have Available Which In Turn Depends On Current And Future Expected.

Investment Depends On Money Factors, But The Key Factors Are Interest Rates And Taxes. If Interest Rates And Taxes Are Low, More Investment Projects Are Likely To Be Profitable And The Level Of Investment Will Increase Export Depend Primarily On Exchange Rates. If Country's Goods And Service Are Cheaper Or Better Than Foreign Goods And Services, Demand For Exports Will Increase.

OUTPUT SUPPLY
Country supply of output also called potential output, depends on.

Inputs: (Factor of production)

Labor: (Amount of time workers spend producing goods and

services.)
Capital

Stock: Amount of tools and equipment available to

workers to produce goods and services.

Total

factor productivity: how much output a country can

produces with the input it has available.

BUSINESS CYCLES (TRADE CYCLES)

Irregular and Different Recurring nature Influences business

Steady Growth Line

Peak

Growth Rate

Bottom
X 0 Y X

Time

INTERNATIONAL TRADE
International trade is the voluntary exchange of goods and services between the countries. Countries can specialize in producing those goods and service in which they have a comparative advantage.

Company can borrow and lend output.

Countries cannot only import or only export, countries need exports to earn foreign currencies which they can then use to purchase import.

OUTPUT GROWTH
Growth

of workforce

Workers Work More Hours. New Workers Enter Workforce.

Growth of capital stock.

New Investment.

Increase in productivity
Increase In Training And Education.

Improvement In Efficiency Technological Advance

INVESTMENT AND SAVINGS

New investment is expenditure on goods and services that are intended to increase future output. New investment in a period of time depends on total new savings and how much a country has borrowed from others.

In short investment is paid through. Private savings Government savings Foreign borrowing ( imports - exports)

MONEY
Money is issued by government and is legal tender. The purpose of money is, Store value Money is legal tender and earn be exchanged for goods and service at any time in the future.
Unit

of account Money is used to records price and of exchange Money facilitates domestic and

finance transactions.
Medium

international trade.

Money Supply & Demand

Money supply is determined by central banks and by commercial

bank. The different categories of money supply are -: M1: Currency in circulation plus demand deposits.

M2: M1 plus saving account and small time deposits.

M3: M2 plus large time deposits

MONEY DEMAND
The demand for the money demands on peoples need to do transactions on

interest rates, and on whether suitable alternatives are available to each. When you hold cash you are not charring interest, so, when interest rates are high people tend to hold less cash and instead deposit or keep cash in there bank account.

INFLATION
Price of individual goods and services always fluctuate, but inflation means the aggregate price level is increasing. Deflation means that the aggregate price level is decreasing , its negative inflation.

INTEREST RATES
Interest rates are the opportunity cost of investment, instead of investing in a price of equipment, that money could have earned interest when plout in a bank account. There are many type of interest rate including rates of borrowing and for lending, rates on government debt securities and on corporate debt securities, short term rates and long term rates.

EXCHANGE RATES
An exchange rates is the price of one currency expressed in terms of another currency.
An inflow of money into a country means there is an increase in the demand for the domestic currency.

An outflow of money out of a country means there is a decrease in the demand for the domestic currency.

T HA N K Y 0 U