Lecture 1.

Introduction to Macroeconomics
 Questions

 1 Subject of Macroeconomics.
 2 Methodological features of macroeconomic
analysis.
 3 Model of circular flows (national economy) as a
reflection of the relationship between
macroeconomic agents and macroeconomic
markets.
 4 Basic macroeconomic equations.
 1. The subject of macroeconomics.

 Macroeconomics is a branch of economic science that

studies the economy as a whole from the point of
view of ensuring conditions for sustainable economic
growth, full employment of resources, and
minimizing inflation.
 Economic growth

 Economic growth is the result

of relatively stable factors such
as population growth and
technological progress. Their
dynamics in the long term
determines the dynamics of
the potential volume of
production.
 1. The subject of macroeconomics.

 In the short term, the economy deviates from

the forward movement, therefore, ensuring
economic growth involves managing these
cyclical fluctuations.
 1. The subject of macroeconomics.

 The management of the economic cycle in order to ensure

full employment of resources and non-inflationary economic
growth is carried out using the instruments of
macroeconomic policy: fiscal (fiscal) and monetary
(monetary):
 1. Fiscal policy is implemented primarily by the government.
 2. Monetary policy - primarily by the central bank. These
policies are objects of research in macroeconomics.
 1. The subject of macroeconomics.

 Macroeconomic analysis involves abstracting from the differences

between individual markets and identifying key points, the functioning
of an integral economic system in the interaction of markets for goods,
labor and money as such, as well as national economies as a whole. We
are talking about mechanisms for establishing and maintaining, with the
help of fiscal and monetary policy measures, short-term and long-term
general macroeconomic internal and external equilibrium.
 It is possible to highlight the main problems considered by
macroeconomics
 1. The subject of macroeconomics

 In other words, in the process of microeconomic analysis, a number of

questions are posed and consistently solved:
 1 What motives are guided by economic agents when making decisions
on the amount of planned costs in the coming period?
 2 What determines the demand for money and what is the role of
money in the economy?
 3 What determines the level of employment and what are the methods
of fighting unemployment?
1. The subject of macroeconomics

 4 What is the nature of inflation?

 5 What are the sources of economic growth and how
to determine the optimal growth rates and
conditions?
 6 What underlies cyclical fluctuations in economic
activity?
 7 What are the basic principles, methods and limits of
state regulation of the economy?
 2. Methodological features of macroeconomic analysis.

 There is a number of levels of aggregation:

 1 Individuals and legal entities are subject to aggregation.
 In this context, only four economic entities are distinguished
as the parts of the national economy, each of which is a set of
real economic units, acting subjects of this type:
 1) the household sector;
 2) the business sector (firms);
 3) the public sector (state);
 4) foreign sector (overseas).
 2. Methodological features of macroeconomic analysis.

 The money market and the capital market are constituent parts of the
financial market, where funds are distributed among economic entities.
International market represented by a foreign sector (overseas).
 When analyzing an open economy, the international market is subdivided
into a market for goods and services, an asset market and a foreign
exchange market.
 The foreign exchange market, in which there is a mutual exchange of
various national currencies, along with the money market in which the
national currency circulates, appears in the models of an open economy.
 2. Methodological features of
macroeconomic analysis.

 Macroeconomic aggregation is not reduced to the summation

of the properties of the aggregated elements, since the
economy, being a complex organic system, has the property of
emergence: the consequences of a certain action of a
microeconomic entity do not coincide with the consequences
of the same action of a macroeconomic entity as an aggregate
of microeconomic entities.
 That is, emergence as one of the pronounced features of the
functioning of the economy as a whole is the irreducibility of
the characteristic features of the functioning of the system as a
whole to the properties of the elements that form it.
 2. Methodological features of macroeconomic analysis.

 The macroeconomic model of the object under study includes two groups
of elements:
 1 Exogenous (external) economic variables, the value of which is
determined outside the given model. These are the parameters known at
the time of building the model;
 2 Endogenous (internal) economic variables, the value of which is
established (determined) as a result of the analysis (solution) of the model.
These are unknown parameters determined within the model.
 2. Methodological features of
macroeconomic analysis.

 In order to create a functioning model of a certain system it is

necessary to introduce an operator (function) connecting the
unknown and known parameters of the model.
 In macroeconomic models, the action of exogenous
parameters is formalized either in the form of some constant
(constant), or in the form of a random (probabilistic) value,
depending on the nature of their action and manifestation.
 2. Macroeconomic modeling

 Macroeconomic analysis is carried out through

macroeconomic modeling, which is based on
simplifying economic reality to the foreseeable
number of the most significant relationships.
 2. Macroeconomic modeling

 Macroeconomic models are formalized (in a logical, graphical and

algebraic format) descriptions of various economic phenomena and
processes in order to identify the main functional relationships
between them.
 Any macroeconomic model is an abstract to one degree or another,
which implies a number of assumptions and simplifications, thus
limiting the scope of its application.
 That is, any model is a simplified, abstract reflection of reality, since
all the variety of specific details cannot be simultaneously taken
into account when conducting research, therefore, any
macroeconomic model is not absolute.
3. The circular flow model of the
economy
4. Basic macroecomic equations
Thank you!