BED 1201

Macro Economics….What is it?

With Jesse N. M
• The objective of the course is to introduce students
to basic macro economic concepts and prepare them
for further concepts
• The course is designed specifically for beginners in
Economics
• Course Assessment will comprise Continuous
Assessment (CAT) which will be marked out of 30 and
a final Exam which will be marked out of 70
• Final Exam will done within 2 hours. Students will be
required to answer 3 questions out of 5. Question
one IS compulsory
• Economics is the study of scarcity.
• Resources are limited, and every society wants
to figure out how to allocate its resources for
maximum benefit
• The field of economics serves in large part to
help answer this resource allocation question.
Key Principles of Economics

• Scarcity, Choice, and Opportunity Cost

• Rational Self-Interest

• Relationship Between Opportunity Cost

and Rational Self-Interest
• Decisions Are Made at the Margin

Introduction to Macroeconomics
 Key Principles of Economics
Scarcity, Choice, and Opportunity Cost

• Limited Resources
• Unlimited Wants
• Scarcity - resources, goods and services
are limited relative to the wants and desires
for them
• Choice
• Opportunity Cost - the highest valued
alternative foregone in making any choice

Introduction to Macroeconomics
 Key Principles of Economics
Rational Self-Interest
• Rational
– Individuals are able to estimate benefits and costs
(net benefit) of a particular action
– They are able to compare the net benefits of
alternative actions
• Self-Interest
– Only engage in that activity if the net benefit is
greater than zero
– Engage in the activity that yields the greatest net
benefit

Introduction to Macroeconomics
 Key Principles of Economics
Decisions Are Made at the Margin

• Marginal Benefit
– the increase in total benefit from the production
or consumption of one additional unit of a good
or service

• Marginal Cost
– the increase in total cost from the production or
consumption of one additional unit of a good or
service

Introduction to Macroeconomics
• Economics can therefore be viewed, as the
social science concerned with the problem of
using scarce resources to attain the maximum
fulfillment of society’s unlimited wants.
• Subject matter of economics is divided in to 2
parts: Macro and Micro economics
What Is Macroeconomics?

• Microeconomics - study of behavior of

individual economic agents.

• Macroeconomics - study of aggregate

measures of the economy

Introduction to Macroeconomics
• An understanding of microeconomics is crucial
to understand macroeconomics.
• To understand why a change in interest rates
leads to changes in real GDP, we need to
understand how lower interest rates influence
decisions, such as the decision of how much
to save, at the firm or household level.
Macroeconomic Goals

• FIVE major concerns of macro

economics are:
• Achieve Full employment
• Price Stability ( Control Inflation)
• Economic Growth
• Achieve Equilibrium BOP
• Equitable Redistribution of Resources

Introduction to Macroeconomics
 Macroeconomic Goals
Complementary and Conflicting Goals

• Complementary Goals
– Low unemployment and high economic
growth

• Conflicting Goals
– Low unemployment and low inflation

Introduction to Macroeconomics
Methodology of Macro economics

• Connections to microeconomics:
• Macroeconomic behavior is the sum of
all the microeconomic decisions made
by individual households and firms. We
cannot understand the former without
some knowledge of the factors that
influence the latter.

Introduction to Macroeconomics
 Aggregate demand is
the total demand for
goods and services in an
economy.
• Aggregate supply is the total
supply of goods and services in an
economy.

Introduction to Macroeconomics
Models of macro economics

 Long-term: Take prices as flexible

and solve for potential level of output.
 Medium Term: Take output as given
and solve for optimal decisions of
agents.
 Short-term: Take dollar prices or
wages as given solve for output.

Introduction to Macroeconomics