MEPP

Assignment
Value Lessons for CEO

Course Facilitator

Submitted By

Dr. Gajavelli V S

Anuj Mishra
2014048
Sec A

MACROECONOMICS
Macroeconomics is the branch of economics concerned with large-scale or
general economic factors, such as interest rates and national productivity. It is
the field of economics that studies the behaviour of the aggregate
economy. Macroeconomics examines economy-wide phenomena such as
changes in unemployment, national income, rate of growth, gross domestic
product, inflation and price levels.

Two central themes of Macroeconomics

The short term fluctuations in output, employment, financial conditions,
and prices that we call the business cycle.
The longer term trends in output and living standards known as
economic growth.

Objectives of Macroeconomics
Output
The ultimate objective of economic activity is to provide the
goods and services that the population desires. The most comprehensive
measure of the total output in an economy is the gross domestic product.
Output in economics is the "quantity of goods or services produced in a given
time period, by a firm, industry, or country," whether consumed or used for
further production.
Employment
Of all the macroeconomic indicators, employment and
unemployment are most directly felt by individuals. In macroeconomic terms,
these are the objectives of high employment, which is the counterpart of low
employment. Particularly low national employment rates may signal a longlasting depression and underdevelopment.
Stable prices

This is defined as low and stable inflation rate. Economists

measure price stability by looking at inflation, or rate of inflation. The inflation
rate is the percentage change in the overall level of prices from one year to the
next.

Instruments of Macroeconomics
Monetary policy
It is conducted by the central bank which determines short run
interest rates. It thereby affects credit conditions, including asset prices such
as stock and bond prices and exchange rates. Monetary policy is maintained
through actions such as increasing the interest rate, or changing the amount of
money banks need to keep in the vault (bank reserves).
Fiscal policy
It consists of government expenditure and taxation.
Government expenditure influences the relative size of collective spending and
private consumption. Taxation subtracts from incomes, reducing private
spending, and affects private saving. Through fiscal policy, regulators attempt
to improve unemployment rates, control inflation, stabilize business cycles and
influence interest rates in an effort to control the economy.

Factors of Macroeconomics
1. Aggregate Supply

The aggregate supply shows the relationship between a

nation's overall price level, and the quantity of goods and services
produces by that nation's suppliers. The curve is upward sloping in the
short run and vertical, or close to vertical, in the long run.
Net investment, technology changes that yield productivity
improvements, and positive institutional changes can increase both
short-run and long-run aggregate supply. Institutional changes, such as

the provision of public goods at low cost, increase economic efficiency

and cause aggregate supply curves to shift to the right.
Some changes can alter short-run aggregate supply (SAS),
while long-run aggregate supply (LAS) remains the same. Examples
include:
Supply Shocks - Supply shocks are sudden surprise events that
increase or decrease output on a temporary basis. Examples include
unusually bad or good weather or the impact from surprise military
actions.
Resource Price Changes - These, too, can alter SAS. Unless the price
changes reflect differences in long-term supply, the LAS is not affected.
Changes in Expectations for Inflation - If suppliers expect goods to sell
at much higher prices in the future, their willingness to sell in the current
time period will be reduced and the SAS will shift to the left.

2. Aggregate Demand
The aggregate demand curve shows, at various price levels, the quantity of
goods and services produced domestically that consumers, businesses,
governments and foreigners (net exports) are willing to purchase during the
period of concern. The curve slopes downward to the right, indicating that as
price levels decrease (increase), more (less) goods and services are
demanded.
Factors that can shift an aggregate demand curve include:
Real Interest Rate Changes - Such changes will impact capital goods
decisions made by individual consumers and by businesses. Lower real
interest rates will lower the costs of major products such as cars, large
appliances and houses; they will increase business capital project
spending because long-term costs of investment projects are reduced.
The aggregate demand curve will shift down and to the right. Higher real
interest rates will make capital goods relatively more expensive and
cause the aggregate demand curve to shift up and to the left.

 Changes in Expectations - If businesses and households are more

optimistic about the future of the economy, they are more likely to buy
large items and make new investments; this will increase aggregate
demand.
The Wealth Effect - If real household wealth increases (decreases), then
aggregate demand will increase (decrease)

Value lessons for CEO

Economic planning
A serious attempt towards self-sustained growth of business is only possible
by efficient planning. Planning is now a days synonymous with growth and
development. Identification of priority areas, estimation of resources and
coordination among various sectors of economy can be done through proper
planning. Planning directs the growth in desirable corners.
Help in solving problem of general unemployment
Effective demand is the focal point of macroeconomics. Reduction in effective
demand brings economic depression and thereby general unemployment.
Hence, the level of effective demand should be increased in order to increase
the level of employment.

Tracing effect of government policy on business

Macroeconomics helps in tracing the implications of government policy

changes on existing business activity.
Macro analysis helps in development of micro analysis
In the deductive method process of logic goes from general to particular. We
go on deducting to draw specific conclusions. Many of micro economic
conclusions are outcome of macro conclusion. The assumption that consumer
is rational has been decided only after knowing about the behaviour of a
group.

Group Learnings

A lot of valuable points came across during the group discussion. The group,
from the discussion concluded that macroeconomics plays a very important
role in assessing a countrys economic condition. The discussion also
included how good and efficient macroeconomic policies can help a countrys
economy in increasing and sustaining.