Monetary Macroeconomics

Definition: Monetary macroeconomics focuses on the effects of monetary policy on the

economy. It examines how changes in the money supply, interest rates, and other monetary
variables impact economic variables like inflation, output, and employment.

Key Concepts:

Money Supply: Refers to the total amount of money in circulation within an economy.
Interest Rates: The cost of borrowing money or the return on savings.
Inflation: The rate at which the general level of prices for goods and services rises.
Role of Central Banks: Central banks play a crucial role in monetary macroeconomics by
controlling the money supply through tools like open market operations, reserve requirements,
and setting interest rates
Real Business Cycle Macroeconomics

Core Principles: Real business cycle theory posits that fluctuations in economic activity are
primarily driven by real shocks such as changes in technology or productivity. It argues that
business cycles are efficient responses to these shocks rather than due to nominal factors like
monetary policy.

Key Features:

Technology Shocks: Changes in technology can lead to shifts in production possibilities and
drive business cycles.
Labor Market Dynamics: Fluctuations in employment and output are seen as responses to real
shocks rather than nominal factors.
Neo-classical 1870 – 1936.

 Neoclassical economics refers to a general approach in economics focusing on

The determination of prices, outputs, and income distributions in markets Through supply and
demand.IT brought the Concept of utility as the key factor in determining value in contrast to the
Classical view that the costs involved in production were value’s determinant.The neoclassical
approach became increasingly mathematical, focusing on Perfect competition and equilibrium
Decisions on economic issues are always made rationally based on Full information on the
usefulness of goods and services
 Consumers compare goods and then make the purchase decision Based on the perceived utility
 The customer’s main objective is to capitalize on the satisfactionAfforded by the use of the
product
 The main aim of the company is to maximize profits
 Market equilibrium is achieved only when both the customer and The company achieve their
respective goals