Macroeconomics

Modular Learning Material

GREAT LEARNING

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
 Key Takeaway Notes

There is an inverse relationship between inflation and unemployment. A lower level

of unemployment would also reflect the higher inflation in the economy, while high
unemployment corresponds with deflation or lower inflation.
The Phillips curve developed by A. W. Phillips stated that unemployment and inflation
have a stable and inverse relationship. He established that booming economies with
serious unemployment rates results in inflation.
Supply-side economics strongly proposes that increasing the supply of goods results in
the economic growth of a nation. The supply is an important factor that shapes the
structure of a wealthy economy.
IS-LM stands for Investment Savings-Liquidity preference Money supply. This model
was developed as a formal graphical representation of Keynesian economic theory. The
joining point of the IS and LM curves displays the equilibrium point of output and
interest rates when the real economy and money market are in balance.
National income accounting is a system of bookkeeping that a government uses to
analyse the level of the country's economic activity for a specified period. Some of the
common national income accounting records may include total revenues earned by
domestic business firms, wages paid to domestic as well as foreign workers, money
spent on sales, tax collected by individuals and business entities in the country.

Academic Vocabulary

Macroeconomics
Macroeconomics is the branch of economics that investigates the performance and
behaviour of an economy as a whole.
Gross domestic product
This is the monetary value of all finished goods and services produced within a country
during a specific period.
Circular flow of income
The circular flow of money reflects how money flows from producers to the labours as
wages and how money flows back to the producer as price(payment) for the product.

Inflation

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
 Inflation reflects the declining purchasing power of money over a period. This is the rate at
which the value of currency declines for the general levels of prices goods and services.
The effect of inflation may seem trivial in the short term, nonetheless over years and
decades, inflation can radically wear down the purchasing power of your money.
Aggregate demand
Aggregate demand refers to the total demand for final goods and services in an economy.
Money market equilibrium
Money market equilibrium happens at the interest rate at which the quantity of money
demanded is equivalent to the quantity of money supplied.

Did you know?

The System of National Accounts popularly known as SNA is the globally agreed standard
set of endorsements on how to accumulate measures of economic activity.
According to the survey conducted by Statista (2020), Venezuela with an inflation rate of
2355.15 % tops the list of 20 countries with the highest inflation rate in the world.
Zimbabwe and Sudan are in the second and third rank with 557.21% and 163.26%
respectively.
According to the recent reports published by Bloomberg, South Africa has the maximum
unemployment rate in the world. The situation further worsened and revised to 34.4 per
cent in Q2 2021 from 32.6 per cent in Q1 2021.
In April 2020, the International Labour Organisation (ILO) projected that nearly 2.5 crore
jobs could be lost worldwide due to the COVID-19 pandemic 2020. Furthermore, it is found
that more than 40 crore workers from the unorganised sector in India may get pushed into
deeper poverty due to the Covid 19 pandemic.
The service and consumption sector continues to improve and become the crucial driver
for China’s economic recovery in 2021 and 2022.

What’s Trending?

Investments in the manufacturing sector would further grow due to its healthy rebound.
The industry across the world is supported by fees reduction, tax exemptions due to the
covid 19 pandemic. Further, the demand and supply cycle is active post covid pandemic
would lead to strong growth and profits.

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
 China would continue to remain the attractive designation for foreign investments. The
supply chain resilience would attract investors across the world.
Globally the interest rates have been ultra-low as central banks scramble to help their
economies recover from the Covid 19 pandemic. However, many Federal Reserve officials
indicated the central bank could raise U.S. interest rates by the end of 2022 based on the
rapid recovery of the economy and an extended bout of high inflation.
The Reserve Bank may be hitting the end of its tolerance for high inflation and will most
likely hike interest rates in the first half of 2022.
Governments, Central banks, and top commercial banks have always aspired to hire
individuals who understand the macroeconomic factors and know the means to moderate
these variables for the best outcomes. Business corporations are looking for individuals
who comprehend a bit about the world and how it functions, mainly when it comes to
economics regarded as a well-regarded discipline of the age. If you are specialised in a
particular area of macroeconomics, then you can use to narrow down your career options
to the kind of roles which will best fit your interests and skills. The best observable role for
someone who has studied macroeconomics is to work for a financial institution or the
central bank of a country. Reserve Bank of India, European Central Bank, Bank of England,
Deutsche Bundesbank, European Investment Bank, Asian Development Bank. The major
commercial banks in the country have also keen on having such individuals at decision-
making levels.

Terminal Questions

What is the major difference between Microeconomics and macroeconomics?

What is Okun's Law? How Does Okun's Law Work?
What is the idea behind liquidity preference theory in economics?
Explain the aggregate demand equation in a closed economy?
How do you think the fiscal policy impact the aggregate demand in macroeconomics?

3D Thinking

The traditional economic theories established that the quantity of a commodity demanded
depends on the price of that commodity. However, to state this the traditional economists

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
propose to keep the other things like consumer preferences, income constant for a definite
period. If the demand for a product or service droops, will it cause the price of that thing to
fall? Will the lower price assures an increase in the level of demand? Present your thoughts
with a strong rationale.

Hint: The question needs to be approached from a demand-Supply-Price intersection

standpoint.

Book References

Ahuja, H. L. (2016). Macroeconomics: Theory and Policy (20th ed.). S. Chand &
Company Ltd.
Froyen, R. T. (2014). Macroeconomics: Theories and policies (10th ed.). Pearson.

Web References

YouTube. (2019, September 17). Inflation explained: What is inflation, types and
causes? YouTube. Retrieved November 26, 2021, from
https://www.youtube.com/watch?v=XqA27kgR2xc.
MIT. (2020, July 16). 2. Preferences and utility functions. YouTube. Retrieved November
26, 2021, from https://www.youtube.com/watch?v=tCKk22kaZi4.
Bodenstein, M., Corsetti G. and Guerrieri, L. Social Distancing and Supply Disruptions in
a Pandemic, Covid Economics: Vetted and Real-Time Papers (2020)
RBI. (n.d.). India's Mid-year External Sector Review. Reserve Bank of India - RBI Bulletin.
Retrieved November 26, 2021, from
https://m.rbi.org.in/Scripts/BS_ViewBulletin.aspx?Id=17994.

******Happy Learning******

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited