INTRODUCTION TO

MACROECONOMICS
RAYNIEL D. ZABALA, MBA

WHAT WE WILL DISCOVER

TODAY:

IS IT IMPORTANT TO STUDY
MACROECONOMICS?
DOES IT AFFECTS OUR LIVES IN ANY
WAY? HOW?
DIFFERENCE BETWEEN
MICROECONOMICS VS.
MACROECONOMICS

MICROECONOMICS VS.
MACROECONOMICS
Microeconomics examines the functioning of individual
industries and the behavior of individual decision making
units, mostly the firms and households. Focuses on the
behavior of buyers and sellers on their respective market.
Macroeconomics focuses on the determinants of total
national output. It does not study household incomes but
national income; not individual prices but overall price level.
It does not analyze demand for labor for automotive
industry but instead total employment in the economy

 Some terms that we will be

encountering are:
Aggregate behavior means behavior
of all households and firms together
Aggregate consumption Total
Consumption
Aggregate investment Total
investments

MACROECONOMIC CONCERNS:
There are 3 major concerns in
Macroeconomics:
Output growth
Unemployment
Inflation and Deflation

OUTPUT GROWTH
While each country would want a stable
growth, economies tend to experience short
term ups and downs in their performance.
The technical term for this ups and downs is
the business cycle.
The main measure of how an economy is doing
is the Aggregate Output its the total
quantity of goods and services produced in an
economy in a given period.

THE BUSINESS CYCLE

Recessions are periods during which aggregate
output declines. Usually lasts for 2 consecutive
quarters. Prolonged and deep recession is called
depression.
Expansion or a boom
Period from Peak to a trough is called contraction,
recession or a slump this is where output and
employment fall.

UNEMPLOYMENT
Unemployment rate - It is the
percentage in the labor force that
is not employed. It is a key
indicator of economys health. It is
always closely related to the
countrys aggregate output figures.

INFLATION AND DEFLATION

INFLATION is an increase in the overall price
level. Keeping inflation low has long been a
goal of government. Especially problematic are
hyperinflations, or periods of very rapid
increase in the overall price level.
DEFLATION is the DECREASE in the over all
price levels. In some periods in U.S. history,
and in Japan, deflation has occurred over an
extended period of time.

THE COMPONENTS OF MACROECONOMY

The Circular Flow Diagram. (2-Sector Model)
It is a useful way of seeing the economic
interactions among the four groups in the
economy. It shows the income received and the
payments made by each group:
Households
Firms

THE 5-SECTOR MODEL. A more realistic

model

CIRCULAR FLOW FIVE-SECTOR MODEL

PRACTICE MAKES PERFECT!!!

1. Explain the Circular flow of Open

Market Economy
2-Sector Model
5-Sector Model