CHAPTER 03

MACROECONOMIC
FRAMEWORK

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LEARNING OBJECTIVES

 To understand the macroeconomic business

environment
 To introduce the main concepts, theories, and
terminology of macroeconomics
 To draw meaningful conclusions from
macroeconomic analysis for effective decision-
making
 To highlight the main factors of macroeconomic
business environment operating in India

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Macroeconomic Environment
Business is affected by the external
environment as it is by the competitors. It is
important that firms are aware of the changes
in the external environment in order to be
successful. Understanding the influence of
macroeconomic factors helps the firms to
determine the current market conditions and
gauge the benefits to their business.

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Macro Economy
 The Economist’s Dictionary of Economics,

“The study of whole economic systems aggregating over

the functioning of individual economic units. It is
primarily concerned with variables which follow
systematic and predictable paths of behaviour and can
be analysed independently of the decisions of the
many agents who determine their level. More
specifically, it is a study of national economies and the
determination of national income.”

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Microeconomics and
Macroeconomics
 Microeconomics examines the behaviour of
individual economic entities, for example,
firms and consumers
 Macroeconomics, on the other hand, is the
field of economics that studies the behaviour
of the economy as a whole and not just of
specific companies

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Key Macroeconomic Variables
 Aggregate output or income

 Unemployment

 Inflation rate

 The interest rate

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Macroeconomic Theories
 Classical economics

 Keynesian economics

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Monetarism
 An economic theory advocating that
governments use interest rates and control of
the supply of money for the purpose of
economic regulation.

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Monetary Policy
 A policy employing the central bank’s control
of the supply of money as an instrument for
achieving the objectives of general economic
policy.

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Fiscal policy
 All the policies taken by the government to
control the economy of the country are called
fiscal policies. Fiscal policy comprises a mix
of budgetary instruments that the government
can use to target particular economic goals,
such as higher economic growth, or improve
income distribution

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Economic Growth and National
Income
 National income growth-rate and data provide
the formal structure for macroeconomic
analysis.
 Knowledge of national income, its accounts,
and movements is of importance to business
firms, as the business sale is indirectly
dependent on its magnitude.

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Versions of National
Income
(a) Gross Domestic Product (GDP)
(b) Gross National Product (GNP)
(c) Net Domestic Product (NDP)
(d) Net National Product (NNP)

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Savings and Investment
Trends

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Household Income and
Consumer Spending

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