Basics of Macroeconomics

INTRODUCTION TO MACRO
ECONOMICS
PRESENTED BY : KAJAL SHETHIA

Macroeconomics:
• Macroeconomics is the study of the nature, relationships and
behavior of aggregate of economic quantities
• Macroeconomics deals with aggregate quantities, national income
and not individual quantities or individual income
• Macroeconomics is the theory of income, employment, price and
money.
• It is the study of the economy as a whole
• It examines the overall level of a nation’s output, employment, price
and foreign trade

Concepts used in macro analysis:
2) FLOW VARIABLE:
They are expressed at per unit of
time.
Example: GDP, consumption, savings,
investment, exports and imports.
1) STOCK VARIABLE:
It refers to the quantity of a variable
given at a point of time.
Example: the stock of capital in a
country, the number of persons
employed, the total money supply,
all at a point in time.

Distinction example between Stock and flow variable:
• Monthly provision of sugar in a household i.e., the quantity of sugar stocked for
monthly consumption is a stock variable and quantity of sugar consumed per day
is a flow variable
• Employment is a stock variable from head count, point of you but from view point
of work effort in terms of man hours, it can be treated as flow variable

Equilibrium:
• It refers to position in which opposite economic factors are balanced.
• Example: DD and SS are in balance then there is no tendency to deviate them
from the position
• At macro level, - it is largely of general equilibrium nature
- it is applicable when a macro analysis is confined either to the
product sector/ to the monetary sector
- an economy is said to be in equilibrium when aggregate DD =
aggregate SS and Total investment = Total savings

Types of equilibrium:
1) Partial equilibrium
2) General equilibrium

Types of equilibrium:
1)Partial equilibrium:
Only a part of economy or economic phenomena is analyzed in isolation to the rest of
the economy, the analysis is a partial economy
It is used in micro economic analysis
It assumes all other things, specially related ones to be constant
Example: analysis of the car price is on the basis of its DD and SS, assuming all factors
of the car price to remain constant, In partial equilibrium assuming its petrol price,
income of consumer, excise duty, sales tax etc to be constant

Types of equilibrium: (continue)
2) General equilibrium:
Here, the economic system as a whole is analyzed
It deals with interrelationship and interdependence between the various elements of the
economy
It allows all the interrelated factors to vary in reaction to one another and analze the
equilibrium of all related sectors/markets
It helps is identifying and explaning the cause and effects of economic disturbance & in the
formation of growth, employement & income determination theories

Disequilibrium:
• It arises out of the working process of the economy
• Working of the market is related to so many interchanges that cause imbalance
between market forces i.e., DD is not equal to SS
• Here, opposite forces are in imbalance

ECONOMIS STATIC & DYNAMIC:
Economic statics
• Normal activities in an economy go on but
there is no change in the size of the economy
or in level of national output, stock of capital
and employment
• It is an abstraction from reality
• All the variables are undated
• It is a timeless analysis
• Economic condition are assumed to be given
and known
Economic dynamics
• It studies the factors and forces that set
an economy in motion and lead or do
not lead it to a new equilibrium
• It is the study of the real world
• All the variables are dated, their
movement on time scale is known
• Time is used as one of the variables
because time works as a determinant of
other variables
• Economic condition continues to change
over time

Basics of Macroeconomics

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