INTRODUCTION TO

MACROECONOMICS
ECONOMICS
- Is a social science which deals with the proper
allocation and efficient use of scarce resources for
the maximum satisfaction of human wants (Fajardo,
1990)
• Economy – “oikonomus” or oikonomia (Greek)
“One who manages a household”
Scarcity - limited nature of society’s resources
Divisions of Economics:
1. Microeconomics = Deals w/ the problems and
analysis of behavior of individual economic
unit such as the consumer (household), seller
(firm), and owners of factors of production
2. Macroeconomics = Deals w/ the problem of
the whole economy and how aggregated
economic units or sectors such as consumer,
business, government and foreign sectors are
interrelated
Goods and Services
- are those that yield satisfaction (tangible and
intangible)

Classification of Goods
1. Consumer Goods – Those that yield direct
satisfaction
2. Capital Goods – Those that are used in the
production of other goods (and services)
3. Essential Goods – These are the “basic” needs of man
4. Luxury Goods – These are those that contribute to
mans comfort and wellbeing
Resources
- Refer to the factors or inputs of production.
They are those which are needed to produce
goods and services.
Classification of resources:
1. Land – natural resources, not man-made.
2. Labor – physical and mental
3. Capital –anything that is used to produce other
goods and services.
4. Entrepreneurship- ability to organize and
coordinate land, labor and capital
Basic Economic Problems:
1. What goods and services to produce?
2. How to produce the goods and services and
how much?
3. From whom are these goods and services?
Models of Economic System:
1. Capitalism/Market economy – It refers to the
free enterprise or laissez faire economy
2. Communism/Command economy –This is the
opposite of capitalism wherein the government
controls the economy
3. Socialism – It s a mixture of capitalism and
communism.
PRINCIPLES OF ECONOMICS
 Factors in decision making
1. People face tradeoffs.
2. The cost of something is what you give up to get
it
3. Rational people think at the margin.
4. People respond to incentives.
How individual decisions affect others
5. Trade can make everyone better off
6. Markets are usually a good way to organize
economic activity.
7. Governments can sometimes improve market
outcomes.
The Forces and Trends That Affect How
The Economy as a Whole Works
8. A country's standard of living depends on its
ability to produce goods and services.
9. Prices rise when the government prints too
much money
10.Society faces a short-run trade-off between
inflation and unemployment
 The Circular Flow
Product Markets
resource payments such as wages, rents, interest & profit

Land, Labor, Capital, Entrepreneurship

Households & Firms

Resource Owners

Goods & Services

Consumption and Expenditures

Resource or Factor Markets

Methodology: Positive vs. Normative
Positive econ. -- Studies the way the world is.
“What is happening?”
How much will a new gasoline tax raise the price of
gasoline?
Will an increase in the minimum wage increase
unemployment?
Why is the price of rice Php 55 per kilogram?
Normative econ. -- Studies the way the world
should be.
“What should be done?”
Should there be a new tax on gasoline?
Should there be an increase in the minimum wage?
What should the price of corn be?
THANK YOU.