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 CHAPTER 10
INTRODUCTION TO
MACROECONOMICS

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 DIFFERENCE BETWEEN
MICROECONOMICS AND
MACROECONOMICS
MICROECONOMICS MACROECONOMICS
 Studies on individual  Studies on national income
income  Analyzes total employment
 Analyzes demand for and in the economy
supply of labour  Deals with aggregate
 Deals with household and decisions
firms decisions  Studies overall price level
 Studies on individual prices  Analyzes aggregate
 Analyzes demand and demand and aggregate
supply of goods supply

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

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 MACROECONOMIC GOALS
Full Employment

Economic Growth
Price Stability

FOUR
MAJOR
GOALS

Equitable Distribution of Income

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved
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 GROWTH
GROWTH FISCAL
FISCAL
MONETARY
MONETARY
POLICY
POLICY POLICY
POLICY
POLICY
POLICY

Contractionary
Contractionary Expansionary
Expansionary Contractionary
Contractionary Expansionary
Expansionary

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

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 THE CONFLICTING
MACROECONOMIC

To achieve full employment

and maintain price stability.

To achieve economic To achieve economic

growth and a equilibrium growth and maintain
in balance of payments. price stability.

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 COMPONENTS OF
MACROECONOMY
Supply of Factor of Production

Payment for Factor of Production

Taxes
Taxes
GOVERNMENT
GOVERNMENT
Transfer
payment, Payments
wages

Purchase of goods and services

Payments for goods and services

Export Export

Import Import

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 AGGREGATE DEMAND AND
AGGREGATE SUPPLY
AGGREGATE SUPPLY
Overall Price Index - Refers to the total
quantity of output
supplied at alternative
AS price levels during a given
time period, ceteris
paribus.

AGGREGATE DEMAND
P*
- Refers to the total
quantity of output
demanded at alternative
AD price levels during a given
time period, ceteris
paribus.

Y* Yf Real GDP

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 AGGREGATE DEMAND AND
AGGREGATE SUPPLY (cont.)
AGGREGATE DEMAND AGGREGATE SUPPLY
Price Price AS2 AS0
AS1
A B

B A
AD1
AD2 AD0
Quantity
Quantity

 Movement along AD curve  Movement along AS curve

  in price level   Real GDP   in price level   Real GDP
(Point B  A) (Point A  B)
  in price level   Real GDP   in price level   Real GDP
(Point A  B) (Point B  A)

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

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 AGGREGATE DEMAND AND
AGGREGATE SUPPLY (cont.)
AGGREGATE DEMAND AGGREGATE SUPPLY
Price Price AS2 AS0
AS1
A B

B A
AD1
AD2 AD0
Quantity Quantity

Shifts of the aggregate demand curve to Shifts of the aggregate supply curve
right (AD0 to AD1) to right (AS0 to AS1)
Income increases  Interest rate decreases
Interest rate decreases  Cost decreases
Government expenditures increases
 Productivity increases
Taxation decreases
Wealth increases  Taxation decreases
Investment increases

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 THE END

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