TOPIC 1: INTRODUCTION TO MACROECONOMICS

At the End of this chapter student should be able to :

1. Define macroeconomics 2. Differentiate between macroeconomics and microeconomics 3. Understand the Objectives of macroeconomics 4. Briefly know Issues related to macroeconomics 5. Briefly know what are policies of macroeconomics 6. Macroeconomics in Islamic framework

 Macroeconomics: The study of the performance of the national economy and the global economy.

DefinitionS of macroeconomics

Macroeconomics is a sub-discipline within economics

which studies the economy as a whole. -it looks at the aggregate outcomes of all the decisions that consumers, firms, and the government make in an economy.
Key concepts in macroeconomics: total output, the overall level of employment, inflation, total consumption and savings, and so on. 1. 2. 3. 4. 5. Some examples of macroeconomics questions are: Why does incomes in Malaysia grow fast in 2007? Will the cost of living be stable? Why the unemployment rate increase? What is the inflation rate and why does the rate increase? What macroeconomic policy tools does the government have to improve the economic situation in Malaysia today?

Differences between macroeconomics and microeconomics

Definition of Economics Economics is the study of the allocation of scarce resources. Microeconomics: the study of choices that individuals and businesses make, the way these choices interacts in the markets, and the influence of governments. Examples of microeconomics questions are: 1. Why are people buying more DVDs and fewer movie ticket? 2. How would a tax on imported car affect Proton?

Objectives of macroeconomics:
1. To study all the issues related to overall economic performance of a country/global economy (can make international comparison): economic growth, unemployment and inflation. To study fluctuating currencies, government budget and international deficits and debts. 2.

3. To understand policy actions (such as an increase in tax) made by the government and how do these actions affects productions, jobs, prices, the value of dollars and our standard of living.
Why do we need to know all the above? - whether we can have better standard of living, get a good job, and afford to buy goods and necessities today or in the future. - the economic performance of our country compared to other countries.

Issues of Macroeconomics
Macroeconomics became a broad subject that studies issues related to: 1. Economic growth, Unemployment and Inflation. 2. Fluctuating currencies 3. Government budget 4. International deficits and debts

Micro vs. Macroeconomic Issues

Short Run issues in Macroeconomics

Most media coverage of macroeconomics focuses on short run questions

Long Run issues in Macroeconomics

Macroeconomics is also about longer term questions

 business cycle in the United States

1.Economic Growth and Fluctuations

Long Run issues in Macroeconomics

.
China 1820 1913

Bangladesh

2010

Japan

US

UK

10000

20000

30000

Income (GDP) Per Head

WHAT ARE MACROECONOMIC POLICIES?

Macroeconomic policies:
the actions that governments take in the macroeconomic field to achieve certain macroeconomic goals . It covers the systems for setting interest rates and government budget and many other areas of government interventions into the economy. Such policies are often influenced by international institutions like the IMF or World Bank as well as political beliefs and others. Why the policies are important?

Macroeconomic Policy Objectives/ Challenges

Five widely agreed policy challenges for macroeconomics are to: 1. Boost economic growth 2. Keep inflation low 3. Stabilize the business cycle 4. Reduce unemployment 5. Reduce government and international deficits

Macroeconomic Policies
Policy Targets The Exchange rate The money supply Aggregate Demand Real GDP Growth Budget Deficit Policy Instruments Monetary Policy Fiscal Policy Exchange rate Policy Policy Goals Stable Price High employment Sustained growth Rising Living Standard Reduction in Poverty Rising Productivity

Macroeconomic Policy Challenges and Tools (different school of thought) Classical and Keynesian Views
Economists views fall into two broad schools: Classical view: The economy behaves best if the government leaves people free to pursue their own self-interest. -Attempts by the government to improve macroeconomic performance will not succeed. Keynesian view: The economy behaves badly if left alone and that --- -government action is needed to achieve and maintain full employment.

End