CHAPTER 1

INTRODUCTION TO
MACROECONOMICS

DR. NOORKARTINA MOHAMAD

BEM 4063 MACROECONOMICS

DIFFERENCE BETWEEN MICROECONOMICS AND
MACROECONOMICS

MICROECONOMICS MACROECONOMICS
 Studies on individual income
 Studies on national income
 Analyzes demand for and supply
 Analyzes total employment in
of labour
the economy
 Deals with household and firms
 Deals with aggregate decisions
decisions
 Studies on individual prices  Studies overall price level

 Analyzes demand and supply of  Analyzes aggregate demand and

goods aggregate supply

 MACROECONOMIC GOALS
Full Employment

Economic Growth
Price Stability

FOUR
MAJOR
GOALS

Equitable Distribution of Income

 GOVERNMENT POLICIES

GROWTH
GROWTH FISCAL
FISCAL
MONETARY
MONETARY
POLICY
POLICY POLICY
POLICY
POLICY
POLICY

Contractionary
Contractionary Expansionary
Expansionary Contractionary
Contractionary Expansionary
Expansionary
THE CONFLICTING MACROECONOMIC

To achieve full employment

and maintain price stability.

To achieve economic To achieve economic

growth and a equilibrium growth and maintain
in balance of payments. price stability.
COMPONENTS OF MACROECONOMY
Supply of Factor of Production

Payment for Factor of Production

Taxes
Taxes
GOVERNMENT
GOVERNMENT
Transfer
payment, Payments
wages

Purchase of goods and services

Payments for goods and services

Export Export

Import Import
AGGREGATE DEMAND AND AGGREGATE SUPPLY
AGGREGATE SUPPLY
Overall Price Index - Refers to the total
quantity of output
supplied at alternative
AS price levels during a given
time period, ceteris
paribus.

AGGREGATE DEMAND
P*
- Refers to the total
quantity of output
demanded at alternative
AD price levels during a given
time period, ceteris
paribus.

Y* Yf Real GDP
AGGREGATE DEMAND AND AGGREGATE SUPPLY
(CONT.)
AGGREGATE DEMAND AGGREGATE SUPPLY
Price Price AS2 AS0
AS1
A B

B A
AD1
AD2 AD0
Quantity
Quantity

 Movement along AS curve

  in price level   Real GDP
 Movement along AD curve
(Point A  B)
  in price level   Real GDP (Point B  A)   in price level   Real GDP
  in price level   Real GDP (Point A  B) (Point B  A)
AGGREGATE DEMAND AND AGGREGATE SUPPLY
(CONT.)
AGGREGATE DEMAND AGGREGATE SUPPLY
Price Price AS2 AS0
AS1
A B

B A
AD1
AD2 AD0
Quantity Quantity

Shifts of the aggregate demand curve to Shifts of the aggregate supply curve
right (AD0 to AD1) to right (AS0 to AS1)
 Income increases  Interest rate decreases
 Interest rate decreases  Cost decreases
 Government expenditures increases
 Productivity increases
 Taxation decreases
 Taxation decreases
 Wealth increases
 Investment increases