Introduction

to Macro
Economics
 Submitted By:
 Noman Iqbal

 Haroon Khan

 Talha Raza Khan

 Semester:
 MBA 1st (Weekend)

 Submitted To:
 Prof Tauqeer Hussain
OUTLINE
• Difference Between Micro &
Macro Economics

• Three Basic Rules of Macro

Economics

• Tools & Instruments of Macro

Economics for measuring
Economic Success

• Aggregate Demand & Supply

• Goals of Macro Economics

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Difference
Between Micro &
Macro Economics

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Difference Between Micro & Macro Economics

M I CRO E CO N O MI CS M A CR O E CO N O M I C S
• Studies Individual Income • Studies National Income

• Analyzes Demand for and supply of • Analyzes total employment in the

Labour Economy

• Deals with households & Firms • Deals with Aggregate Decisions

Decisions
• Studies overall Price Level
• Studies on individual Prices
• Analyzes Aggregate Demand &
• Analyzes demand and supply of Supply
goods

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Three Basic
Rules of
Macro
Economy

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Three Basic Rules of Macro Economics

1. Unemployment

2. Inflation

3. Output Growth

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Unemployment
“Economist measure the unemployment rate
in an economy by calculating the
percentage of individuals without jobs”

Unemployment Categories Include:

1. Classic Unemployment: When wages are too high for employers to
consider hiring more workers.

2. Frictional Unemployment: Occurs when the time taken to search

for an appropriate employee is too long.

3. Structural Unemployment: Occurs when there is a mismatch

between a worker’s skills and the actual skill required for a job.

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Inflation & Deflation
Inflation: The term inflation refers to an increase in
the prices of goods and service

Deflation: refers to the decrease in the prices of

goods and services.

• Economists measure inflation & deflation by studying price

indexes. A price index is weighted average of price for a class of
products and services.

• Inflation occurs when an economy grows too quickly, Deflation

occurs when an economy declines over a period of time .

• Too much inflation can lead to negative consequences and

continuous deflation can cause low economic output.

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Income & Output
One of the most important concepts of macroeconomics is income and
output. The national output is the total amount of all goods and services
produced in a country during a specific period. And when production
units or organizations sell everything they produce, they generate an equal
amount of income. Hence, you can measure output by calculating the total
income from the sale of all goods and services.

In relation to macroeconomics, economists usually measure national

income or output by gross domestic product or GDP. By measuring GDP,
economists can understand the market swings and changes. They can
identify what measures to take to improve the GDP of the country. With
technological advances, capital increase, and acquisition of state-of-art
equipment, production units and organizations can increase national
output and income. However, income and output can be affected by the
recession and other market factors.

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Government
Policies

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 Government Policies

Fiscal Growth Monetary

Policy Policy Policy

Contractionary Fiscal Expansionary Fiscal Contractionary Monetary Expansionary Monetary

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 The government plays an important role in the realization of these
macroeconomic policies goals. The government manages the economy by
implementing three kinds of policies.
1. Fiscal Policy: “Government policies regarding taxes and expenditure”
The purpose of a fiscal policy is to stabilize the economy. There are two types of fiscal policies.

a) Contractionary fiscal policy:-The government can use this policy to bring the economy out of inflation by
increasing taxes and decreasing government expenditures. This measure slow down growth.

b) Expansionary fiscal policy:- This policy is implemented to get the economy out of a slump. The government
implements this policy by reducing taxes and increasing government expenditures. This measure will increase the
disposable income which will, in turn, lead to an increase in consumption.

2. Growth Policy: “Growth policies have been aimed at increasing the growth rate. Supply
side policies are growth policies instituted by the government that focus on stimulating aggregate
supply”
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 Government Policies
3. Monetary Policy: “Government tool used through the central bank to control the supply
of money ”

The purpose of a monetary policy is to achieve higher economic growth. There are two types of Monetary policies.

a) Contractionary Monetary Policy:-The government can use this policy to curb inflation where the amount of
money supplied will be reduced.

b) Expansionary Monetary Policy:- This policy is implemented when there is this session and government will
increase the supply of money.

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Aggregate Demand
& Supply

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 Aggregate Demand & Supply
1. Aggregate Demand: “Refers to the total quantity of output demanded at alternative price levels
during a given time period”

2. Aggregate Supply: “Refers to the total quantity of output supplied at alternative price levels in a
given period of time.

Overall Price Index

AS

AD

Aggregate Output
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Aggregate Demand & Supply
AGGREGATE DEMAND AGGREGATE SUPPLY
Price Price AS2 AS0
AS1
A B

B A
AD1
AD2 AD0
Quantity
Quantity

 Movement along AD curve  Movement along AS curve

  in price level   Real GDP
•  in price level   Real GDP (Point B (Point A  B)
 A)   in price level   Real GDP
(Point B  A)
•  in price level   Real GDP (Point A
 B)
Aggregate Demand & Supply
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
 Wealth increases  Taxation decreases
 Investment increases
Macroeconomics
Goals 18
Macroeconomics Goals
Full Employment

Economic Growth
Price Stability

FOUR
MAJOR
GOALS

Equitable Distribution of Income

Macroeconomics Goals
1. Full Employment: “To achieve full employment of all aval factors of production i.e.,
Land, Labour, Capital and Entrepreneurship”
a. Unemployment means available resource is not being used
b. Unemployment rate shows the percentage of a labour force being out of employment
c. Full employment does not mean 100% labour force is employed

2. Price Stability: “Maintaining price stability or controlling inflation”

a) Inflation occurs when there is an increase in the overall price level
b) Inflation can reduce purchasing power of the consumer
c) It can lead to income not rising as fast as prices thereby penalizing certain groups of people

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 Macroeconomics Goals
3. Economic Growth: “Functioning of economy at maximum level”
a. Increase in the full production output level of a nation overtime.
b. Economic growth of our nation does not move constantly but will experience short term ups and downs.
This is called business cycle.
c. 4 phases of business cycle: Peak, Recession, Trough and Recovery

4. Equitable distribution of income: “Narrowing the gap between the higher income and
lower income groups”
a) It means to ensure all people are equal in terms of the standard of living.
b) Disparities in income will create social friction
c) Taxation and expenditure policies are the methods through which this goal can be achieved
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