What is Macroeconomics?

Macroeconomics is the study of structure and

performance of the national economies and of
the policies that government uses to try to
affect that economic performance.
 What is Macroeconomics
Macroeconomics is the study of structure and
performance of the national economies and of
the policies that government uses to try to
affect that economic performance.
The issue that macroeconomic addresses
• What determines a nation’s Productivity?
• What causes unemployment?
• What causes prices to rise?
• What causes a nation’s economic activity to fluctuate?
• Can government policies be used to affect nation’s
economics?
• How does being a part of a global economic system
affect nation’s economics?
Unemployment
• Unemployment means the number of people who
are available for work or actively seeking for work but
cannot finds job. This is the third major issues of
macroeconomics.
• We measure it through unemployment rate that is
number of unemployed divided by the total labor
force.
• It creates Psychological cost, mental stress, decreases
consumption, income and increase crimes
History of unemployment
Inflation
• When price of most goods and services in an economy are rising
over time, the economy is said to be experiencing the inflation.
• We measure it through inflation rate that is the percentage
increase in average price levels.
• It can increase slowly such as 1 or 2 percent annually in case of
Switzerland and 1000% such as in Argentina(hyper or extreme
inflation).
• It extreme inflation episodes economy works poorly and
purchasing power of people declined rapidly and people
compelled to use their money for consumption as soon as
possible after receiving.
Historical view of Consumer Price Index
Business cycles
• Growth of output is not always smooth but has hills and
valleys.
• Macroeconomics uses the term business cycle to describe
short run but some time sharp contractions and
expansions in economic activity.
• The downward phase of a business cycle, during which
output may be falling or growing very slowly, is called
recession. These are hard economic times for many people
in an economy. Macroeconomics tries to find the factors
that determine it and remedies to cure it.
Why Too Much Actual Real GDP is not desirable?
Relationship between output gap and
unemployment gap
Which one is the best and how we can achieve
this??
Basic business cycle concepts
Long run economic growth
• Why people of some advanced economies have better
living standard than people of developing nations?
• From a macroeconomic perspective the basic reason
of this difference is the long period of high and rapid
economic growth in past of advanced countries
,whereas, poor countries either failed to achieve it or
faced a discontinuity followed by economic decline .
Historical View of USA GDP
Productivity
• “Productivity” is the Aggregate Output per hour of work that
a nation produces in total goods and services. The faster
aggregate productivity grows, the easier it is for each
member of the society to improve his or her standard of
Living.
Continue…
Long run Growth
Can government policies be used to affect nation’s economics?

• Monetary policies (Money supply and interest rate)

• Fiscal policies( Government expenditures and Taxes)
• Other policies(Trainings of labor)
How does being a part of a global economic
system affect nation’s economics?

• Minimal Trade in 1930 (5% of GDP)

• Flow of capital(inflow and outflow) was restricted in 1930.
• Fixed Exchange Rate system was before 1970
• But Currently just Imports are 17% of GDP in USA
• Exchange rate is much volatile and its prediction is a
difficult task.
• Everyone can buy and USA assets(Stocks, Bonds,) and can
do online shopping easily.