MACRO ECONOMICS INTRODUCTION TO MACRO ECONOMICS BIJU P

MACRO ECONOMICS INTRODUCTION TO MACRO ECONOMICS BIJU P M PGT(ECO)

INTRODUCTION TO MACROECONOMICS Macroeconomics is the study of aggregate economic variables of an economy. Consumption goods Are those which are bought by consumers as final or ultimate goods to satisfy their wants. �Eg: Durable goods car, television, radio etc. �Non-durable goods and services like fruit, oil, milk, vegetable etc. �Semi durable goods such as crockery etc. �

ORIGIN & GROWTH OF MACROECONOMICS � � � The growth of macroeconomics can be studied two sections Classical approach Keynesion approach Classical approach The classical economist like Adam Smith, J S Mill etc belived that an economy can function without any govt. interference. Accoding to them, full employment is a normal feature of an economy.

Keynesian Approch � Macroeconomics as a separate branch emerged after the British Economist John Maynard Keynes published his book “The general theory of Employment , Interest and Money” in the year 1936. He believes that full employment is not always possible and the govt. must interfere to generate employment oppertunities. He stressed on the role of the government to undertake investment to create employment oppertunities.

SECTORS OF AN ECONOMY � � � AN ECONOMY IS BASICALLY DIVIDED INTO FOUR SECTORS Households (H)- It includes all those who supply factors of production to the firms and buy the goods and services from the firms. Firms (F) - These are economic unit which goods and services and employ factors of production from the households. Government (G) – They maintain law and order and work for the economic wellbeing of the citizens. External (X-M) - Economic transactions of a country with the rest of the world

Types of circular flow � � Real flow/product flow/physical flow It refers to the flow of factor service from households to firms and the corresponding flow of goods and services from firms to households. Money flow/Nominal flow Money flow refers to flow of factor payments from firms to households and corresponding flow of consumption expenditure on goods and services. It is also known as nominal flow.

CIRCULAR FLOW IN A TWO SECTOR ECONOMY � � A simple economy assumes the existence of only two sectors – house holds and firms. Households are the owners of factors of production and consumers of goods and services produced by the firms. It is in the form of a closed economy where there is no govt. sector and foreign sector. Households supply factor services only to firms and firms produces goods and services only for households. Households receives factor income from firm and spend the entire amount on goods and services from firms.

� In the circular flow of income production generates income , which is converted into expenditure. This flow of income is a continuous activity as production is continuous due to never ending human wants. It makes the flow of income circular. � Conclusion of circular flow in two sector Economy Total production = Total consumption Factor payment = Factor Income Consumption Expenditure = Factor Income � � �

STOCK AND FLOW � � � Stock and flow are variables which are frequently used in macroeconomics. A variable is a measurable quantity which changes or varies its value. Some macro variables are related to stock while others are flow variables. Stock stock refers to those variables whose quantities are measured at a particular point of time. Eg. Stock of a particular goods in the godown as on 31 st jan 2018. , national wealth, opening stock of a company, water in a tank etc. Stock is a static concept.

FLOW � � FLOW VARIABLE REFERS TO THOSE VARIABLE WHICH IS MEASURED ON A PERIOD OF TIME Eg production of a particular commodity during jan 2017.

Differentiate between stock and flow � � Stock It refers to that variable which is measured at a particular point of time It does not have a time dimension It’s a static concept � � Flow It refers to that variable which is measured over a period of time. It has a time dimension. It is a dynamic concept.

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