Macroeconomics Objectives

CHAPTER 10
INTRODUCTION TO
MACROECONOMICS
Principles of Economics second edition All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2010 Ch. 10: 1
MICROECONOMICS VERSUS MACROECONOMICS

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

COMPONENTS OF MACROECONOMY
Supply of Factor of Production
Payment for Factor of Production
Taxes
Taxes
GOVERNMENT
GOVERNMENT
Transfer Payment
payment,
wages s
Purchase of goods and services
Payments for goods and services
Export Export
Import Import

AGGREGATE DEMAND AND
AGGREGATE SUPPLY
AGGREGATE SUPPLY
- Refers to the total
Overall Price Index 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.
Q* Aggregate output

MACROECONOMIC GOALS

Full employment
i. Full employment does not mean no

unemployed or jobless people in the economy.
ii. Not necessarily 100 percent of labour force is
employed.
iii. It merely means an economy can optimise the
available resources efficiently.
iv. The crucial consequences of unemployment
are wastage of available resources and social
problems.

Price Stability
i. A condition in which the currency retains its purchasing
power by maintaining low and stable inflation.
ii. A high degree of inflation rate associated with sustained
increase in the general price level can cause disaster to
the economy.
iii. Inflation negatively influences purchasing power. The
quantity of goods and services purchased for the same
amount of money will become less.
iv. Maintaining price stability is important to avoid uncertainty
and disruptions in the economy. Consumers and
businesses can safely pursue long-term consumption and
production plans.
Economic Growth
i. Economic growth can be described as expansion
in national output over a given period of time.
ii. A nation that achieve economic growth is
described as having positive economic
performance.
iii. An economy will not always encounter an upward
trend across the time as economies tend to
experience short-term ups and downs.
iv. This is called a business cycle.

Economic Growth cont.
Figure 9.2
A Typical Business
Cycle
In this business cycle, the
economy is expanding as
it moves through point A
from the trough to the
peak.
When the economy
moves from a peak down
to a trough, through point
B, the economy is in
recession.

Equitable Distribution of Income
i. It is based on the idea that the growth of
economy should be shared equally among
the population.
ii. The gap between the rich and the poor
should not be too wide.
iii. This is to ensure that most people equal in
terms of standard of living.
iv. Disparities of income will create social
friction and bring out many problems.

Equilibrium in Foreign Sector
i. Foreign sector means economic transactions or
activities that take place beyond nations’ political
boundaries.
ii. The performance of a nation in the foreign sector is
assessed based on its balance of payment (BOP).
iii. Imports greater than exports lead to BOP deficit while
exports greater than imports lead to BOP surplus.
iv. A BOP deficit will lead to higher debt while a
prolonged BOP surplus will lead to inflation.
v. Thus, a country must achieve equilibrium in foreign
sector or favourable BOP.

MONETARY GROWTH
GROWTH FISCAL
FISCAL
MONETARY
POLICY POLICY
POLICY POLICY
POLICY
POLICY
Contractionary Expansionary
Expansionary Contractionary
Contractionary Expansionary
Expansionary
Contractionary

THE CONFLICTING MACROECNOMIC
To achieve full employment and

maintain price stability.
To achieve economic To achieve economic

growth and maintain growth and maintain
favorable balance of
price stability.
payments.


Macroeconomics Objectives

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Macroeconomics Objectives

Uploaded by

Copyright:

Available Formats

CHAPTER 10

Principles of Economics second edition All Rights Reserved

Principles of Economics second edition All Rights Reserved

Principles of Economics second edition All Rights Reserved

Supply of Factor of Production

Payment for Factor of Production

Purchase of goods and services

Payments for goods and services

Principles of Economics second edition All Rights Reserved

Principles of Economics second edition All Rights Reserved

Principles of Economics second edition All Rights Reserved

i. Full employment does not mean no

Principles of Economics second edition All Rights Reserved

Principles of Economics second edition All Rights Reserved

Principles of Economics second edition All Rights Reserved

Principles of Economics second edition All Rights Reserved

Principles of Economics second edition All Rights Reserved

Principles of Economics second edition All Rights Reserved

To achieve full employment and

To achieve economic To achieve economic

Principles of Economics second edition All Rights Reserved

You might also like