Objectives of Macroeconomics

Topics: Economics, Inflation, Macroeconomics Pages: 9 (1486 words) Published: November 3, 2012
Introduction to Macroeconomics

Chapter 1
Introduction to Macroeconomics

Economics is divided into two main branches: microeconomics and macroeconomics. Macro means large, and micro means small.
Microeconomics takes a close-up view of the economy by concentrating on the choices made by individual participants in the economy such as consumers, workers, business managers and investors.
Microeconomics stresses on the role of prices in business and personal decisions. One of its major goals is to understand how prices of particular goods and services are determined and how prices influence decisions. Because of this reason, microeconomics is sometimes called price theory.

Macroeconomics looks at the economy from a broader perspective by considering its overall performance.
It is the study of aggregate economic activity. Aggregate economic activity is the performance of the economy as a whole – the economy in the aggregate. Examples are people’s incomes and living standards, unemployment; inflation – rising prices – and changes in the value of money.

Examples of Differences between Micro and Macro:
The study of smaller scope
Individual decision making units
Household income
Production of particular product
Individual prices
Attention to specific units

The stud of bigger scope
Aggregate decision
National income
National output/product
Overall general price level
Units as an Aggregate

Introduction to Macroeconomics

They are as follows:
槨 To achieve full employment
槨 To achieve price stability
槨 To achieve economic growth
槨 To achieve equilibrium in foreign sector
槨 To achieve equitable distribution of income
(a) To Achieve Full Employment

The more fully resources are employed, the greater the level of output of goods and services and higher standard of living.
High unemployment causes poverty. People become dissatisfied with the government and this will lead to political upheaval. Standard of living worsens. Increased crime and even violent revolution can result from failure to attain the macro economic goal of full employment.

Unemployment in the economy means that existing factors of production are not used to produce goods and services. This results in ultimate inefficiency and wastage to the country.

Unemployment Rate – Definition: The percentage of labor force that is out of work and seeking jobs or a temporary layoff.
Thus, full employment is a situation in which unemployment exists only because of normal market adjustments to changing demand or supply or outmoded skills of workers. This is sometimes called the natural rate of unemployment.

(b) To Achieve Price Stability (Control Inflation Rate)

A situation of no inflation or deflation in the economy. This means that there is no overall change in the level of prices of goods, services and resources.

Three main problems associated with inflation are:
i) Redistribution effects.
ii) Uncertainty about future prices
iii) Money loses its function as a medium of exchange.
(c) To Achieve Economic Growth

Rate of economic growth is defined as the percentage increase in output over a twelve-month period. Economic growth refers to the growth of real Gross National Product (GNP). Real (GNP) is a measure of the quantity of the income of all the individuals in the economy – a measure of living standard.

Introduction to Macroeconomics

Economic growth can be classified as actual and potential. Actual growth the growth in what is actually produced. When statistics on growth rates are published, it is actual growth they are referring to. Potential growth is the speed at which the economy could grow, if it were to use all its resources.

Two major factors contributing to potential economic growth are: i. An increase in resources
ii. An increase in the efficiency, with which these resources are...
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