University of OEB Academic Year: 2023/2024

Department of Economic Sciences

Third Year Licence Monetary and Banking Economics

Teacher: Miss M. Khames

Lecture 02: The Macroeconomics

Macroeconomics is the branch of economics that focuses on the overall performance of a

country's economy. It deals with the study of national income, output, employment, and prices.

Understanding macroeconomics is vital for business professionals as it helps them make

informed decisions in a constantly changing economic environment.

The Gross Domestic Product (GDP) is a key indicator in macroeconomics. It measures the

total value of all goods and services produced within a country's borders over a specific period. A

growing GDP usually indicates economic expansion, while a declining GDP may signal a

recession. Business leaders often use this data to assess the health of an economy and to plan for

growth or contraction.

Inflation and unemployment are two more essential macroeconomic concepts. Inflation

refers to the rise in the general price level of goods and services over time. High inflation can

erode the purchasing power of consumers, impacting businesses' pricing strategies.

Unemployment rates, on the other hand, are indicators of a nation's workforce utilization. A high

unemployment rate may result in reduced consumer spending and can affect business

profitability.

Economic Policies play a vital role in macroeconomics. Governments and central banks

implement various policies to influence the economy. For instance, fiscal policy involves the
government's use of taxes and spending to manage economic conditions. A decrease in taxes can

stimulate consumer spending, benefiting businesses, while increased government spending on

infrastructure projects can boost employment and economic growth. Monetary policy, managed

by central banks, focuses on controlling the money supply and interest rates. Lowering interest

rates can encourage borrowing, thus promoting business investments and expansion.

Trade imbalances and exchange rates are also macroeconomic factors that businesses

closely monitor. Trade imbalances occur when a country's exports and imports are not in

equilibrium. An excess of imports can negatively impact domestic businesses as it may lead to

job losses and decreased domestic production. Exchange rates, which determine the value of one

currency in terms of another, can significantly affect international business transactions.

Fluctuating exchange rates can influence the cost of imports and exports, affecting a company's

profitability and competitiveness in global markets.

Reading Comprehension:

1- What is the major concern of Microeconomics? What does it study?

2- What do the growing and declining GDP indicate?

3- Why is it important for business professionals?

4- What is meant by unemployment rates?

5- Explain the impact of inflation on businesses.

6- How does the monetary policy control the money supply and interest rates?

7- What is meant by trade imbalances?

Vocabulary:

1- Match the terms with their correct definitions:

Terms: Gross Domestic Product (GDP) – Inflation - Fiscal Policy - Monetary Policy -

Unemployment Rate - Business Cycle - Trade Balance - Aggregate Demand

Definitions:

- The central bank's management of the money supply and interest rates to control

economic conditions.

- The recurring fluctuations in economic activity that consist of expansion, peak,

contraction, and trough phases.

- The total value of all goods and services produced within a country during a specific

period.

- A measure of the rate at which the general level of prices for goods and services is rising

and subsequently, purchasing power is falling.

- The total quantity of goods and services that all buyers in an economy would purchase at

different price levels.

- The government's use of taxation and spending to influence the economy.

- The difference between the value of a country's exports and imports.

- The percentage of people who are able and willing to work but are not currently

employed.

Grammar: Active vs. Passive Voice

 Definition :

- Active Voice: In active voice, the subject of the sentence performs the action. In active

voice, the doer of the action is clear, and the sentence is often straightforward. The subject

comes before the verb, and the action is clear.

For example: "The company produces high-quality products."

- Passive Voice: In passive voice, the action is performed on the subject, and the subject

receives the action. In passive voice, the focus is on the receiver of the action, and the

doer of the action is often less important or even omitted. The object of the action comes

before the verb, and the verb is usually a form of "be" plus the past participle.

For example: "High-quality products are produced by the company."

 Rules for Changing Voice:

To change from active to passive voice, follow these steps:

- Make the object of the action the new subject.

- Use a form of "be" (like "is," "are," "was," "were") in the correct tense.

- Add the past participle form of the main verb.

For example, to change "The company produces high-quality products" to passive voice:

- Object of the action becomes the subject: "High-quality products."

- Use a form of "be" in the correct tense: "are" (present tense).

- Add the past participle form of the main verb: "produced."

So, in passive voice, it becomes: "High-quality products are produced by the company."

Activity: Change the following sentences from the active voice into the passive voice.

- The government implements fiscal policies to manage the economy.

- Consumers influence the supply and demand dynamics.

- The company sets the prices of its products.

- Investors should consider market equilibrium in their strategies.

- The central bank controls the money supply.

- Firms manage economies of scale to reduce production costs.

- The company will launch a new product next quarter.

- Policymakers introduce tax incentives to stimulate investment.