BEM 1006- Unit -1:Topic-1(Introduction to Macro Economics)

1. Branch – BA (Hons.)
Subject: Introductory Macro Economics
SHRI RAMSWAROOP MEMORIAL UNIVERSITY
By
Dr. B. B.Tiwari
Professor
Department of Management
Shri Ramswaroop Memorial Group of Professional Colleges, Lucknow
bhupendra.tiwari07@gmail.com Contact: 9838001910
Unit-1: Lecture – 1
Topic: Introduction to Macro Economics

2. Macro Economics
The history of present day macroeconomics started with the
publication of J.M. Keynes’ “ The General Theory of Employment,
Interest and Money” in 1936.
Before the General Theory, microeconomics dominated the entire
analysis under the assumption of full employment.
But the Great Depression of 1930s broke this belief with a number
of devastating outcomes.

3. What Macroeconomics is About
• Macroeconomics is the study of the structure
and performance of national economies and of
the policies that governments use to try to
affect economic performance.

4. Macroeconomics vs. Microeconomics
• Microeconomics
– Decisions of individual units
• No matter how large
• Example: GE’s pricing policy
• Macroeconomics
– Behavior of entire economies
• No matter how small
• Example: inflation in Monaco
– Economic aggregates: aggregate output, inflation, unemployment…

5. Macroeconomics & Aggregation
• Aggregation
– Combine many individual markets into one overall market
• Why can we aggregate?
– Composition of demand & supply
• In various markets
• Important for microeconomics issues
• Not important for macroeconomics issues
– During economic fluctuations, markets move up or down together

6. Macroeconomics & Microeconomics
• Macroeconomics
– Assume most details
• Resource allocation & income distribution
• Relatively unimportant
• Microeconomics
– Ignore macroeconomics issues
– Focus – individual markets
• Allocate resources
• Distribute income

7. Supply & Demand in Macroeconomics
• Aggregate demand (AD) curve
– Quantity of domestic product – demanded
– Each possible value of price level
• Aggregate supply (AS) curve
– Quantity of domestic product – supplied
– Each possible value of price level

8. Two interpretations of a shift in the demand curve
Figure 1
0
Quantity
Price
(a)
D
D
0 Quantity
Price
(b)
Q0
S
S
P0
E
D0
D0
S
S
P0
D1
D1
P1
E
A

9. Supply & Demand in
Macroeconomics• Inflation
– Sustained increase in price level
– Outward shift of aggregate demand curve
• Recession – period of time
– Total output – declines
• Production falls
• People lose jobs
– Inward shift of aggregate demand curve
9

10. An economy slipping into a recession
Figure 2
10
0
Domestic Product
PriceLevel
D0
D0
Q0
S
S
P0
D2
D2
P2
Q2
E
B

11. Summary
• Macro vs. Micro
• Macro is all about Aggregation
• AD-AS curve
• GDP
• Business Cycles vs. Economic Growth
• Brief Macroeconomic History of US
• Stabilization Policy

12. End of Chapter