INTRODUCTION

TO
MACROECONO
MICS
Phases of Business Cycles
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Phases of Business Cycle
◈ Prosperity
◈ Recession
◈ Depression
◈ Recovery

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The Business Cycle

Prosperity

Rec

y
er
ov
e
ssio

ec
R
n
Depression
TIME

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Circular Flow of an
Economic Activity
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Economic Model
◈ It is a simplification of economic
reality. It can be presented into the
following forms:
a. Mathematical equation
b. Set of diagrams
c. Scheme or flow charts 6
Macroeconomic models

Provides a systematic guide that

permits the complexities of the
operations of the economy as a whole
for understanding and interpretation.
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Macroeconomic analysis

Aims to diagnose the reason for failure

in achieving economic goals and to
point the way toward better
performance in the future.
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Circular flow of economic activity reflecting
the outflows and inflows
WAGES/SALARIES, RENT, INTEREST, PROFIT

LAND, LABOR, CAPITAL, ENTEPRENEURSHIP

CONSUMERS BUSINESS FIRMS
GOODS AND SERVICES
CONSUMPTION EXPENDITURES
SAVINGS BANKS INVESTMENT
GOVERNMENT
TAX GOVERNMENT EXPENDITURES

IMPORT FOREIGN COUNTRIES EXPORT

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Equilibrium Condition:
Outflows = Inflows
Leakages = Injections
S+T+M = I+G+X

Excess inflow- expansionary

Excess outflows- contracting economy 10
Economic Policies:
◈ Monetary policy can affect savings and
investments.
◈ Fiscal policy can control taxes and
expenditures.
◈ Trade policy can affects the country’s
import and exports.
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Mathematical form of economic
model:

Where: Y= National income

C= Consumption Expenditures
I= Investment
G= Government expenditures
X= export
M= import 12
Economic Performance:
◈ Gross National Product (GNP)
◈ Gross Domestic Product (GDP)
◈ Per Capita Income (PCI)
◈ Per capita GNP

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Economic Growth and
Business Cycle
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Various factors that can affect business:

◈ Exogenous- these are forces outside the

economic system like natural calamities,
political crisis, wars, and technological
changes.

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Various factors that can affect business:

◈ Endogenous- these are forces within the

economic system like multiplier,
accelerator, monetary policies or
innovations.

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Employment and
unemploment
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Employment rate

◈ It is one indicator used in determining

the four (4) economic phases. Prosperity
for an instance is determined if there is
full employment.

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Unemployment is categorized as
follows:
1. Frictional unemployment. Laid off due to some
reason like friction against co-workers,
employers, or environment.
2. Structural unemployment. Innovations and
technological changes render the skills and
talents of some workers obsolete.
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Unemployment is categorized as
follows:
3. Cyclical unemployment. When economy starts
to fall, more companies and business close
shop that results to unemplyment of the
workers.
4. Seasonal unemploment. workers ome sectors
of the economy
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Unemployment is categorized as
follows:
5. Societal Employment. People like ex-convict,
disabled and ex-mental patients have difficulty
in looking for a job because society believes
that they are not worthy to be trusted.

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 Theories of Unemployment:
1. Classical Theory of Unemployment (by Adam
Smith). This theory is based on the supply and
demand principle. It says that there is more
employment at a lower wage rate. If wage hikes,
employers will tend to lay off their workers. The
theory claims that there is widespread
unemployment because people do not want a
lower wage. 22
 Theories of Unemployment:
2. Keynesian Theory of Employment (by John
Maynard Keynes). This is considered the modern
theory of unemployment. It explains that
employment is triggered by the aggregate demand
for goods and services. As demand gets higher,
production increases giving rise to more
employment.
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