CHAPTER 1
BY GRP 1V I N D A , KO M A L , P U R N I M A , C H A R L E S, TA N M AY, J A S O N
MACROECONOMICS
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 behaviour of consumers
Eg- considers income of consumers
Concerned with individual markets
Study of the economy as a whole
Eg- considers GDP of the country
Concerned with 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.
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