Macroeconomics
Sourabh B Paul
Indian Institute of Technology Delhi
II Semester 2024-25
Sourabh B Paul (IIT Delhi)
Macroeconomics
II Semester 2024-25
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Section 1
Introduction
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How economics is discussed on social media
Figure 1: X post
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How economics is discussed on print media
Figure 2: News Report
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Lecture Outline
What Macroeconomics is about
What Macroeconomists do
Why Macroeconomists disagree
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What Macroeconomics Is About
Macroeconomics: the study of structure and performance of national
economies and government policies that aect economic performance
Issues addressed by macroeconomists:
Long-run economic growth
Business cycles
▶ Unemployment
▶ Ination
▶ The international economy
▶ Macroeconomic policy
▶
▶
Aggregation: from microeconomics to macroeconomics
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Long-run economic growth of India I
Figure 3: Output of the Indian economy (1950 to 2017)
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Long-run economic growth in India
Output started growing at a faster rate sometime in late eighties
Interrupted by the periods of recessions (*)
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Long-run economic growth of the USA
Figure 4: Output of the U.S. economy, 1869-2011
What are main sources of growth in India?
Write a short note on sources
of long-term output growth
in India
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II Semester
2024-25
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Average labor productivity in the United States
Figure 5: Average labor productivity in the United States, 1900-2011
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Total Factor Productivity (TFP)
Dened as aggregate output per unit of “aggregate input”
As there are multiple inputs, TFP is expressed as the ratio of output
to weighted average of labour and capital inputs (the standard
weighting of 0.7 for labour and 0.3 for capital)
Output = f (land, labour , capital, other intermediate inputs)
land, labour and capital are called factors of production - used in the
production process
▶ other intermediate inputs are used up in the production process
(e.g. our in bread production)
▶
The production technology can be summarised by a function:
Y = AF (N, K )
▶
▶
A is a total factor productivity parameter
Under some assumptions, growth in TFP becomes the portion of
growth in output not explained by growth in labour and capital used in
production
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TFP in India
Figure 6: Total Factor Productivity at Constant National Prices for India
(1954-2017)
Identify major events from the timeline that may aect economic
performance (check global events
too!):
Macroeconomics
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Business cycles
Business cycle: Short-run contractions and expansions in economic
activity
Downward phase is called a recession
Figure 7: Quaterly GDP (1995-2020)
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Unemployment
Unemployment: the number of people who are available for work and
actively seeking work but cannot nd jobs
Recessions cause unemployment rate to rise
Along with growth and business cycles, the problem of unemployment
is a third major issue in macroeconomics
The highest and most prolonged period of unemployment occurred
during the Great Depression of the 1930s.
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Unemployment rate in the USA
Figure 8: The U.S. unemployment rate, 1890-2011 (% of civilian labor force)
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Unemployment rate in India
Figure 9: Unemployment in India, total (% of total labor force)
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Youth unemployment rate in India
Figure 10: Youth Unemployment Rate for India
Why is youth unemployment rate rising faster since 2008?
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Ination
Ination rate: the percentage increase in the level of prices
Deation: when prices of most goods and services decline
Hyperination: an extremely high rate of ination
The last signicant deation in the United States occurred during
1929-1933, the initial phase of the Great Depression
Since then, ination has become the normal state of aairs
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Ination in the USA
Figure 11: Consumer prices in the United States, 1800-2011
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Ination in India
Figure 12: Consumer Price Index: All Items for India
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The international economy
Open vs. closed economies
Open economy: an economy that has extensive trading and nancial
relationships with other national economies
▶ Closed economy: an economy that does not interact economically with
the rest of the world
▶
Trade imbalances
▶
▶
Trade surplus: exports exceed imports
Trade decit: imports exceed exports
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U.S. exports and imports
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India exports and imports
Figure 14: Exports and imports as percent of total output, India
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Macroeconomic Policy
Fiscal policy: government spending and taxation
▶
▶
Eects of changes in government budget
Expenditure and revenue of the central/federal government
Monetary policy: growth of money supply; determined by central bank
▶
▶
the Reserve Bank of India
the Fed in U.S.
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U.S. Fiscal position
Figure 15: U.S. Federal government spending and tax collections, 1869-2011
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India’s scal position
Figure 16: Government expenditure and tax revenue, India
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Aggregation
Macroeconomics is one of two broad areas within the eld of
economics; the other is microeconomics
Microeconomists focus on individual consumers, workers, and rms,
each of which is too small to have an impact on the national economy
Macroeconomists focus on national totals
Aggregation: summing individual economic variables to obtain
economywide totals
Distinguishes microeconomics (disaggregated) from macroeconomics
(aggregated)
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