Introduction to Macroeconomics

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Session - 3
PROGRAMME
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SECOND YEAR – SECOND SEMESTER
BACHELOR OF COMMERCE (SPECIAL) DEGREE
ECONOMIC ANALYSIS FOR BUSINESS
COM 22035
COMPULSORY
INTRODUCTION TO MACROECONOMICS
B.PRAHALATHAN, DEPARTMENT OF COMMERCE
Learning Objectives:
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differentiate micro and macro economics
study the nature and importance of micro and macro economics
explain the macroeconomics policy objectives
Introduction
Microeconomics and Macroeconomics are the two main pillars of modern economic
theory. Another name for microeconomics is price theory and the corresponding
name for macroeconomics is income theory.
Microeconomics
Microeconomics studies the economic decision making of firms and individuals in a
market setting; it is the study of the Economy in the small. Microeconomics splits up
the entire economy into smaller parts for the purpose of intensive studies. It is also
known as slicing methods.
Subject Matter or Scope of Microeconomics
Micro Economics is concerned with the following topics
 Commodity Pricing
 Factor Pricing
 Welfare Theory
Uses / Importance / Advantages of Microeconomics
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Understanding operation of economy at a micro level
Optimization of resource allocation
Minimization of Cost
Understanding Consumer Behavior
Demand Forecasting
Impact of change in Price/Income/Prices of related goods etc on the
demand of a Product
Government Policy Making
Foreign trade and exchange rate determination
Maximization of Social Welfare
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Macroeconomics
Macroeconomics is the study of aggregates covering the entire economy. Thus,
macro-economics is related to study of aggregates like total employment, total
output, total consumption, total savings, total investment, national income,
aggregate demand, aggregate supply, general price level, balance of payments
position of an economy etc.
Since macro-economic deals with aggregates, it is also known as theory of income
and employment or income analysis
Nature of Macroeconomics
Macro-economic studies the aggregates of the entire economy. The nature of macroeconomic can be understood with the help of the following aspects:
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Determination of national income and employment
Determination of general price level
Economic growth and development
Distribution of factors of production
Macroeconomic Theories
Macroeconomic theories use macroeconomic models to explain the behavior of
macro economic variables and specify the nature of the relationship between them.
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Income determination
Consumption
Investment
Employment
Price level determination
Product and money market equilibrium
Exchange rate
Balance of payments
Macroeconomic Policy Orientation
Under Macroeconomic policy orientation Macroeconomic analyses the working and
effects of government policies, especially the monetary and fiscal policies, on the
economy.
Scope and Significance
Macroeconomics occupies a significant place in economic analysis and has a lot of
theoretical and practical importance. The importance of macro-economic can be
understood from the following points:
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Importance of Aggregate Variables
Importance of Macroeconomic Issues
Growing Complexity of Economic System
Need for Government Intervention with the Market System
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Macroeconomic Policy Objectives
Macroeconomic policies have several objectives. They may be divided into
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Primary objectives
Secondary objectives
Primary objectives
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To achieve full employment
To achieve price stability
To achieve economic growth
Regional development
Secondary objectives
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Full production
High standard of living
Social welfare
Control of monopoly
Avoidance of cyclical fluctuations
Economic freedom
Equilibrium in balance of payments
REFERENCES
1. Dwivedi, D.N (2007); MACROECONOMICS: THEORY AND POLICY; S Chand
& Co Ltd (December 1, 2007); p23-39.
2. Mariam,M & John kenady; MACROECONOMIC THEORY; PHI Learning Private
Ltd; 2011; p3-15.
3. Ahuja,H.L(2007) MACROECONOMICS: THEORY AND POLICY . S Chand & Co
Ltd (December 1, 2007)
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