CHAPTER 1 : INTRODUCTION 1.

WHAT IS ECONOMICS (CONVENTIONAL VS ISLAMIC)

2. WHAT IS THE DIFFERENCE BETWEEN MACRO & MICRO 3. MACROECONOMIC OBJECTIVE (CONVENTIONAL VS ISLAMIC)

DEFINITION OF ECONOMICS
CONVENTIONAL
Study of how society chooses to allocate its scarce resources to the production of g & s in order to satisfy unlimited wants Irvin B. Tucker Science which studies human behaviour as a relationship between ends & scarce means which have alternative uses L. Robbins Study of man in everyday business life Alfred Marshal Social-science study as it deals with human behaviour in making the decision on how people use scarce resources in fulfilling their unlimited wants - Economist

CONVENTIONAL
2 problems in economy i. Productive resources which to produce g & s are limited ii. Human wants for g & s are unlimited
Economy has to decide how to use these resources efficiently in order to attain the max possible satisfaction for the members

DEFINITION OF ECONOMICS
ISLAMIC
Social science which studies the economics problems of people imbued with islamic values M A Mannan Study of how man can achieve al-falah through his control, ownership & uses of these worldly resources based on the concepts of cooperation & partnership Akram Khan A study used by man to fulfill his as well as societys wants according to syariah principle Amir Mohd al-Faysal as Saud A study of human activities for obtain, manage & use the economic resources according to the syariah principles for the betterment of human life both materially, spiritually in order to achieve the blessing of Allah (al-falah) Islamics

ISLAMIC
Ultimate objective in Islam to achieve al-Falah Mean achieve success in this world & hereafter i.e guarantee given by Allah How to achieve al-falah? - All activities & DM are carried out based on philosophic foundation of the Islamic economic system ie i) Hablum min Allah ii) Hablum minan nas iii) r/ship man vs nature & surroundings iv) meaning of his living in this world

DIFFERENCES : CONVENTIONAL VS ISLAMIC

Conventional Islamic

Eco obj to reach max o/put Tends to reach the same obj as with the use of scarce resources conventional but constrained by the islamic ethical philosophy Consumer max satisfaction Through 4 concept ie tauhid, rububiyyah, khalifah, tazkiyah Producer max

DIFFERENCES : MICRO VS MACROECONOMICS

Microeconomics
Part of economics that studies indv units or economic elements in the process of DM ie focus on small economic units

Macroeconomics
Studies the economy as a whole or deals with the aggregate Seeks to understand the big picture rather than the detailed of indv choice

in price of sugar National income Production of canned pineapples Economic growth Inflation

MACROECONOMIC OBJECTIVE DIFFERENCES : CONVENTIONAL VS ISLAMIC

Conventional
Achieve full employment

Islamic
Max employment

Achieve price stability Achieve Achieve social justice & equitable distribution of distribution of income & health income

Achieve economic growth

Achieve in foreign sector

Achieve optimal rate of economic growth Universal education

OBJECTIVE OF CONVENTIOAL MACROECON

i) FE - meaning - L force - unemployment rate ii) P stability - meaning - inflation rate - 3 main problems associated with inflation rate a) redistribution effect (real vs fixed income ) b) uncertainty about future price c) money looses its function as medium of exchange

OBJECTIVE OF CONVENTIOAL MACROECON

iii) Equitable of distribution of income - meaning - 2 methods a) tax policy b) expenditure policy - which one is better

iv) Economic growth - meaning & rate - classification (actual vs potential) - factors contribute to potential economic growth - business cycle / trade cycle

OBJECTIVE OF CONVENTIOAL MACROECON

v) in foreign sector - meaning - BOP surplus vs deficit

BUSINESS CYCLE
National output Potential output

c Trade cycle
b e

a peak b recession c trough d expansion e recovery

Time / year

OBJECTIVE OF ISLAMIC MACROECON

i) Max job opportunities - same as conventional

ii) social justice & distribution of income & wealth - concept of Tauhid - will not abuse the power & wealth given iii) optimal econ growth - emphasize more on human capital - moral, spiritual, material aspect iv) Universal education - equal opportunity regardless their background

Exercises 1. One of the objectives of conventional macroeconomics is to maintain price stability. Explain.

2. The ultimate goal of an Islamic government is to achieve alFalah. Discuss the macroeconomic objective of an Islamic government in relation to the ultimate goal mentioned above. 3. To achieve economic growth is an important macroeconomic objective in any country. Explain what is meant by economic growth and why is it very important. 4. Explain the major objectives of macroeconomics from the conventional as well as the Islamic perspective.
5. Discuss why full employment is very important. Analyze the effect of an increase in unemployment rate.