ME Fiscal Policy Notes

Topics: Macroeconomics, Economics, Tax Pages: 41 (14290 words) Published: December 24, 2014
1.3 Micro & Macro Economics for Business Decisions

Syllabus of the chapter:

(B) Macro Economics

(1)Fiscal Policy: Basic Economics Indices (National Income, National Production, National Employment, General prices level). Aggregate Demand (Consumptions, Government Expenditure & Business investment). Aggregate Supply. Determination of Income (or production). Taxation & Fiscal policy.

A Note for MFA (I semester) Students:-The words underlined above are the portions completed till date in the class and are the portions for your second internal examination as well.

Macro Economics

Introduction of Macro Economics

The term ‘macro’ was first used in economics by Ragner Frisch in 1933. But as a methodological approach to economic problems, it originated with the Mercantilists in the 16th and 17th centuries. They were concerned with the economic system as a whole. In the 18th century, the Physiocrats adopted it in their Table Economies to show the ‘circulation of wealth’ (i.e., the net product) among the three classes represented by farmers, landowners and the sterile class. Malthus, Sismondi and Marx in the 19th century dealt with macroeconomic problems. Walras, Wicksell and Fisher were the modern contributors to the development of macroeconomic analysis before Keynes.

Certain economists, like Cassel, Marshall, Pigou, Robertson, Hayek and Hawtrey, developed a theory of money and general prices in the decade following the First World War. But credit goes to Keynes who finally developed a general theory of income, output and employment in the wake of the Great Depression.

Meaning of Macro Economics

Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole.

The word ‘Macro’ is derived from the Greek word macros meaning large. Macroeconomics deals with aggregative economics. Macroeconomics is defined as the study of overall economic phenomena, such as problem of full employment, GNP, savings, investment, aggregate consumption, aggregate investment, economic growth, etc. it is also known as Theory of Income and Employment since its major subject matter deals with the determination of income and employment.

Definition: Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole. It focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product and inflation.

Description: Macroeconomics analyzes all aggregate indicators and the microeconomic factors that influence the economy. Government and corporations use macroeconomic models to help in formulating of economic policies and strategies.

The study of macro economics is used to solve many problems of an economy like, monetary problems, economic fluctuations, general unemployment, inflation, disequilibrium in the balance of payment position, etc.

Nature of Macroeconomics

Macroeconomics is the study of aggregates or averages covering the entire economy, such as total employment, national income, national output, total investment, total consumption, total savings, aggregate supply, aggregate demand, and general price level, wage level, and cost structure. In other words, it is aggregative economics which examines the interrelations among the various aggregates, their determination and causes of fluctuations in them. Thus in the words of Professor Ackley, “Macroeconomics deals with economic affairs in the large, it concerns the overall dimensions of economic life. It looks at the total size and shape and functioning of the “elephant” of economic experience, rather than working of articulation or dimensions of the individual parts. It studies the character of the forest, independently of the trees which compose it.” Macroeconomics is also known as the theory of income and employment, or simply income analysis....
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