basic concept of macroeconomics

1. Macroeconomics
“Economics is what economists do”- Jacob Viner
Macroeconomics is the study of the behavior and performance of the economy as a whole.
Definition:
Gardner Ackley: Macroeconomics concerns the overall dimensions of economic life…More
specifically, macroeconomics concerns itself with such variables as aggregate volume of an
economy, with the extent to which its resources are employed, with size of the national
income, with the general price level, etc.
K.E. Boulding: Macroeconomics is the stud of the nature, relationship and behavior of
aggregates of economic quantities….Macroeconomics deals not with individual quantities
as such, but aggregates of these quantities…not with individual incomes, but the national
income, not with individual prices, but with the price levels, not with individual output, but
with the national output.
N.G. Mankiw: macroeconomics is the study of the economy as a whole- including growth in
incomes, changes in prices, and the rate of unemployment. It attempts both to explain
economic events and to advise policies to improve economic performance.

2. Nature of Macroeconomics
 Macroeconomics is relatively a new branch of economics
 A full fledged macroeconomics appeared only after the publication of Keynes’
General Theory of Employment, Interest and Money in 1936
 Macroeconomics is more normative by nature (unlike positive science)
 Macroeconomics is both a theoretical as well as policy science
Evolution of Macroeconomics
 Classical and Neo Classical School of Thought (1776-1930)
Most of the classical theories built on micro foundation
Macroeconomics not developed as a separate branch of economics
 Keynesian School of Thought (1930s-1960s)
The publication of Keynesian ‘General Theory of Employment, Interest
and Money’ laid the foundation of modern macroeconomics
 Post Keynesian Schools of Thought (early 1970s onwards)
Monetarism (from demand management to monetary management)
New Classical School ( emphasized on the role of individual’s rational expectations)
New Keynesian School (problems of information and cost of changing prices lead
price rigidities which cause fluctuation in output and employment)

3. Anatomy of Economics
Economics
MacroeconomicsMicroeconomics
Product Pricing Factor Pricing Theory of Eco. Welfare
Theory of Demand
Theory of production and cost
Rent Wages Interest Profits

4. Macroeconomics
looks at the economy as a whole. Economy-wide phenomena, including
inflation, unemployment, workings of the monetary system, business
cycle, economic policies (fiscal & monetary), economic growth and its
determinants, etc.
Macroeconomic goals
• Full employment:
This is the situation at which all available resources (labor, capital, land,
and entrepreneurship) are used to produce goods and services. It enables
more production that can reduce the scarcity problem.
• Stability:
This is avoiding or limiting fluctuations in production, employment, and
prices. It reduces uncertainty of the future.
• Growth:
This is increasing the economy's ability to produce goods and services. It
improves living standards and better addresses the scarcity problem.

5. Macroeconomics is concerned with the behavior of the economy as a
whole. It deals with
 the economy’s total output of goods and services,
 the growth rate of output,
 the rates of inflation and unemployment,
 the balance of payments,
 exchange rates,
 booms and recessions,
 economic policies, etc.
Prime concern of
macroeconomics
Macroeconomics
Theory of income
& employment
Theory of general
price level
Theory of economic
growth
Theory of consumption
function
Theory of
investment
Economic Policies

6. Importance of macroeconomics
 Understanding the working of the economy
 Explaining the behavior of economic complexities and finding solution
 Formulating economic programs and policies
 Analyzing various macroeconomic issues
 Any other ?
Limitations of Macroeconomics
 It ignores the changes in the constituent elements of aggregates
 It may lead to misleading conclusion as aggregates are not a reality but a
picture or approximation of reality
 Many consider macroeconomics as an ‘intellectual attraction’
 Other ?
Types of macroeconomics
 Macro static
 Comparative macro static
 Macro dynamic

7. Importance of macroeconomics
 Understanding the working of the economy
 Explaining the behavior of economic complexities and finding solution
 Formulating economic programs and policies
 Analyzing various macroeconomic issues
 Any other ?
Limitations of Macroeconomics
 It ignores the changes in the constituent elements of aggregates
 It may lead to misleading conclusion as aggregates are not a reality but a
picture or approximation of reality
 Many consider macroeconomics as an ‘intellectual attraction’
 Other ?
Types of macroeconomics
 Macro static
 Comparative macro static
 Macro dynamic