Session 1

MACROECONOMICS
An Introduction

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What Macroeconomics is about?
Study of the structure and performance of national economies and of the policies that government use to try to affect economic performance.

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Main Issues in Macroeconomics
• Inflation: What are the causes, consequences and remedies? • Unemployment: How can it be reduced? • Output and Growth: How to increase it? HOW TO ACHIEVE HIGHER ECONOMIC GROWTH WITH STABILITY?!!!

3

Business Cycles
The business cycle is the short-term tendency for output and employment to fluctuate around their long-term trend path.
B Output C D A Trend output Actual output A: Slump B: Recovery C: Boom D: Recession

B A

Time

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Indicators of Economic Success • High Output (GDP) • Low Unemployment • Stable Prices Instruments of Macroeconomic Policy • Fiscal policy • Monetary policy • Trade policy
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• Aggregate Supply: Prices and costs, potential output, resources (K,L,l and T) determine total production. • Aggregate Demand: Money and prices, spending and taxes, other forces determine demand.

Tools of Macroeconomics

AS ≡ AD
Ideal economic condition
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AD and AS schedules The interaction of AS and AD determines output, employment, prices, inflation, foreign trade and overall economic situation in a country.
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Time frame for Macro Analysis
The long run The short run The medium run

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Major Schools of Thought
Classical School, since 1776 Keynesian School, since 1936

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