CHAPTER 1

INTRODUCTION
TO
MACROECONOMICS

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LEARNING OUTCOMES

1. To understand the definition of

economics

2. To explain the difference between

microeconomics and macroeconomics

3. To discuss objective of macroeconomics

from conventional and Islamic
perspectives

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 DEFINITION OF ECONOMICS

CONVENTIONAL PERSPECTIVE
•Social-science that studies of how
people use scarce resources to satisfy
unlimited wants.

ISLAMIC PERSPECTIVE
•Social science which studies the
economic problems of the people imbued
with Islamic value

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 Division of Economics

Economics

Microeconomics Macroeconomics

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MICROECONOMICS

➢Is the branch of economics that

studies the decision making made by
particular units in economy
➢such as the decision made by the
households, firms, industries and
government
➢Examples of this studies are: -
-demand and supply of goods by
particular units in economy
-Specific production of good and
services from particular industry
-The determination of individual
income, individual prices and etc.
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MACROECONOMICS

➢A study of decision making for

the economy as a whole
➢Example; the determination of
national income, economic
growth, inflation or general
prices, unemployment, import,
export and etc.

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Macroeconomic Objectives in
Conventional economics

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i) Full employment

✓ Full employment is when all available

resources are used efficiently to produce
output.
✓ Higher production can be produced and
more job available can be created by the
country
✓ If government fail to achieve full
employment, it may lead to
unemployment
✓ Some country with high unemployment
will be consider as a serious problem
because unemployment will lead a lot of
social
problems
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ii) To achieve Price stability

➢ A situation when there is no overall

change in the price level
➢ In other words; there is no inflation
and deflation
➢ Inflation occurs when there is an
increase in general price level
➢ Inflation can reduce the purchasing
power of consumers and penalizing a
certain groups of people such as
pensioners and fixed income earners.
➢ Deflation is recession
➢ Deflation may cause unemployment
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iiii) To achieve Equitable distribution of
income

❑ Every country try to narrow down

the gap between higher income
groups and lower income groups
❑ This is to ensure that all people are
equal in terms of standard of living
❑ Disparities of income will create
social frictions and brings about
many problems
❑ Taxation and subsidies is the method
of achieving an equitable distribution
of income earners 10
 iv) To achieve Economic growth

✓ Economic growth can be described as an

expansion in national output over a given
period of time
✓ This growth can be measured by
calculating the percentage increase in
national income for the current period as
compared to the previous period
✓ The economic growth of a nation does not
move constantly, but will experience short
terms ups and down called business cycle.
✓ The economy must be operating at
optimum capacity to get higher economic
growth
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Macroeconomic Objectives in
Islamic economics

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i) To achieve social justice in
distribution of income and wealth

✓ Achievement of justice is accordance

to the principle of brotherhood in
Islam
✓ In Islam, wealth refer to all things
created by Allah
✓ So that, as a trustee, we need to
manage them according to Islamic
principles
✓ Islamic economy try to establish fair
and equitable distribution of wealth
for the members through zakat,
sadaqah, waqaf and etc.
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ii) To achieve Universal education

✓ Universal education is an
objective which stated that is
compulsory for muslim to
acquire knowledge
✓ In Islam, every children should
be given an opportunity to gain
free education and the
government can provide
subsidies to ensure the children
to be well educated
✓ Thus, that the education can
equalized among the children
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iii)To achieve optimal rate of growth
✓ Islamic economy also uses all the
resources and capital which are
scarce for the growth but it
emphasizes on sustainable economic
growth
✓ In Islam, economic growth
emphasizes more on capital
formation such as moral, spiritual
and ethical
aspect of human wellbeing
✓ Those capital formation will
differentiate
Islamic growth with conventional
growth
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iv) To maximize job opportunities
✓ An Islamic government will ensure that
economic growth results in a maximum
creating of new job opportunities and
must have long run impact
✓ economically: employment provide
income to poor families, revive domestic
demand for goods and stimulate overall
growth
✓ Socially: employment can improve social
welfare and social wellbeing in the
long run by maximizing revenue with
high numbers of job opportunities.

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