MACROECONOMICS

CHAPTER
BY GRP

VINDA, KOMAL, PURNIMA, CHARLES, TANMAY,

JASON

MACROECONOMICS
Macroeconomists study aggregated indicators such

as GDP, unemployment rates, and price indices to understand

how the whole economy functions.
Explains the effect of variables such as- Price level, Interest rates,

National income.
Explains the growth & fluctuations in an economy.

Eg. effects of population, businesses , new technology etc.

Includes national, regional, and global economies

Macro economics / Micro economics

Study of individual

Study of the economy as

behaviour of consumers
Eg- considers income of
consumers

a whole
Eg- considers GDP of the
country

Concerned with individual

Concerned with

markets

national/global market

Uses of Macroeconomics
Essential for having good economic policies
To increase and sustain long-term economic growth

(e.g. through Govt. spending and tax proposals)

To help deal with economic issues especially

inflation, national debt etc.

GDP-GROSS DOMESTIC PRODUCT

Total Value of all the goods & service produced in a

country
GDP measures the actual physical production of

goods and service ,in which country produces for

trade to rest of the world

Recession- Decrease in GDP.

Recovery- Increase in GDP post recession but

under the trend line

Expansion- Periods where GDP rises above its

trend line

Inflation
The percentage change in the average price of all

goods & services in an economy

Prices tend to rise when economy is at its peak, prices

rises less rapidly when economy is near at a dip.

Generally increases before recession & subsides in the

wake of a recession

Inflation

Employment Rate
Employment rate closely follows the fluctuations in

real GDP.
Firms lay off workers as GDP declines and inflation

rises the economy suffers a downturn

Employment rate

Interest rates
The amount charged for a loan by the bank, an

institution or any other lender

One of the controlling factors to regulate money

supply in the economy, ( by the RBI )

Real interest rate- interest rate minus the

expected rate of inflation

Growth rate
The growth rate of an economy depend on Population

growth, capital accumulation & technological progress.

Calculating % growth rate-

100

Difference in growth of current year over previous

Rate of current year

Model of long-run growth

Macroeconomics uses long-run Growth to study the

general upward moving economy over a period of

time
Does not dwell on how the economy adjusts to

Temporary elements that effect it.

Eg- any short financial turmoil

Inflation & unemployment in long-term/short-term

No Long-term trade-off between rate of inflation &

rate of unemployment.
Inflation affects unemployment rate only in the short

run.

Monetary policy
Exercising controls the supply of money, often

targeting a rate of interest for the purpose of

promoting economic growth and stability
E.g. By changing Interest rate.