This document provides an introduction to macroeconomics. It defines macroeconomics as the study of a country's overall economic structure, performance, and how government policy impacts economic conditions. Macroeconomics analyzes factors that contribute to economic growth like job opportunities, goods/services, and standards of living. It also examines broad aggregates like total employment, income, and prices. The objectives of macroeconomics are achieving full employment, price stability, and economic growth. Common macroeconomic problems discussed are inflation, unemployment, and the business cycle.

1. Lesson 3
Macroeconomics

2. Introduction to Macroeconomics
• Macroeconomics is an analysis of:
a country's economic structure and performance &
the government's policies in affecting its economic
conditions.
• Economists are interested to know the factors that contribute
towards a country's economic growth because if the economy
progresses, it will provide more
job opportunities,
goods and services and
eventually raise the people’s standard of living.

3. Defining Macroeconomics
The term macro-economics applies to:
• “The study of relations between broad economic aggregates (deals with a holistic
approach of the economy by dealing with various aggregates) such as:
 total employment,
 the national product or income,
 the general price level of the economy etc.”
• Therefore, the macroeconomics is also known as “aggregate economics”.
• Macroeconomics: the study of the economy as a whole.
• Macroeconomics deals with the whole economic system like
 national income,
 total savings and investment,
 total employment,
 total demand,
 total supply,
 general price level etc

4. Importance Of Macroeconomics
• It helps to understand working of the whole economy
It provides rich information regarding the working of the
economy. It helps us to estimate the economic variables
relating to the:
 total income,
 total output,
 total employment etc.
It analyses the working of the economy.
• It studies and analyzes growth and development in an
economy.
It helps to achieve the goal of economic growth, higher level
of GDP and higher level of employment. It analyses the forces
which determine economic growth of a country and explains
how to reach the highest state of economic growth and
sustain it.

5. • It helps in formulation of economic policies
Macroeconomics is highly useful for understanding the various
economic policies of a country. Especially it is useful for studying
the severe problems of developing economies like
 unemployment,
 over population,
 scarcity of goods,
 low output,
 hyperinflation etc.

6. Objectives Of Macroeconomics
 Achieving Full Employment
• This does not mean that there will be no unemployment at all or that the
rate of unemployment will be zero in a country.
• Basically, economists agree that there can still be unemployment although
the economy is at a level where it has achieved full employment, meaning
that those who are able and willing to have a job can get one.
 Price Stability
• Generally, price stability means there are no changes in general price
levels.
• This also means that the prices of some goods and services may increase,
while some other prices may drop at the same time. When prices remain
largely stable, there is no rapid inflation or deflation.
 Good Economic Growth
• Achieving good economic growth is also one of the aims of
macroeconomics.
• This would mean there is an increase in the real per capita income from
year to year.

7. Macroeconomic Problems

9. • Inflation arises when the average price level in the economy consistently and persistently
increases. In other words, prices generally rise from month to month and year to year.
With inflation the economy is not attaining the stability goal.
• Inflation is a problem because:
– The purchasing power of financial assets such as money declines, which reduces financial wealth and
lowers living standards.
– Greater uncertainty surrounds long-run planning, especially the purchase of durable goods
and capital goods.
– Income and wealth can be haphazardly redistributed among sectors of the economy and among
resource owners.

11. • While attention is usually focused on the unemployment of labor, any of the four factors of
production can suffer unemployment.
• For example, The Wacky Willy Company might be operating one of its Stuffed Amigos factories at
half capacity or Herb Haberstone might leave a section of his farmland uncultivated.
• Unemployment is a problem because:
– Less output is produced and thus the economy is less able to address the scarcity problem.
– The owners of unemployed resources receive less income and thus have lower living standards.

14. • Contraction:
The contraction phase of a business cycle is characterized by a general decline
in economic activity.
– Aggregate demand is less, meaning less output is produced, &
– Thus fewer resources are employed.
For this reason, unemployment tends to be a key problem. However, because
markets are more likely to have surpluses than shortages, inflation tends to be
less of a problem.
• Expansion:
The expansion phase of a business cycle is characterized by a general rise in
economic activity.
– Aggregate demand is higher, production is greater, and
– More resources are employed.
Demand for production often outpaces the ability to supply the production.
Under these circumstances, because markets are more likely to have
shortages than surpluses, inflation tends to be the primary problem. However,
with robust production and jobs aplenty, unemployment tends to be less of a
problem. (unemployment also happens when the economic situation is good).