BASIC INTRODUCTION TO MACROECONOMICS,
TOOLS AND TERMINOLOGIES
By- Rhit Srivastava
• 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
Types of economics
• Macro economics :
Concentrate on large picture of economy.
Microeconomics deals with behavior of individual market and the business, consumer investors and worker that make up the economy.
Basic Macroeconomics Terminology
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
• RECESSION :
The unemployment rate = no. of unemployed persons/ no. pf people in the labor force
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)
• Flow of cost approach :
• Wages of workers + Rent property owner +
Interest for lenders + Profits for firms.
• Actual vs. Potential GDP:
What we can
What a economy can maximum
produce without causing
• Actual GDP < POTENTIAL GDP
RECESSIONARY RANGE OF ECONOMY
• ACTUAL GDP> POTENTIAL GDP
RISK OF INFLATION
NOMINAL VS. REAL GDP:
CAN NOT BE
• 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 bcycle. • Forecasting allow to plan about production and inventory. • Forecasting decreases risk in business cycle.
• Macroeconomics tools:
Fiscal policy tools:
• To fight recession:
- Stimulate the economy :
• To fight inflation :
- Contract economy:
Monetary policy tools :
to fight recession
contract economy to
• 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.
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