Macro economics i

it deals introduction of macroeconomics.

1. N.DHINAKARAN ASSISTANT PROFESSOR OF ECONOMICS VIVEKANANDA COLLEGE TIRUVEDAKAM WEST MADURAI Course Title : Macro Economics-I Course Code : : 01CT 51

2. UNIT –I Macro Economics: Meaning, Nature and Scope of Marco Economics – Differences Between Micro and Macro Economics - Importance and Limitations of Macro Economic Analysis – Circular Flow of Income – Two and Three Sector Models.

3. Introduction The term Macro in English has its orgin from Greek word “Makros” which means large. The term Micro and Macro Economic were coined by Ragnar Frisch in 1933. Macroeconomics is also known as the theory of income, and employment, or simply income analysis. The Mercantilist were concerned with the economic system as a whole in the 16 th and 17 th centuries. According to Physiocrates wealth of nation was derived soley from agriculture. Malthus, Sismondi and Marx in the 19 th century dealt with macro economics problems. Walras, Wicksell and Fisher were the modern contributor to the development of macroeconomic analysis before Keynes. But credit goes to J.M. Keynes who finally developed a General Theory of Employment, Interest and Money in the wake of Great Depression.

4. Meaning and Definition of Macroeconomics Prof. J.M. Keynes is known as father of modern macroeconomics. Macroeconomics became popular after great depression of 1929- 33. Prof . J.M. Keynes wrote the book General Theory of Employment, Interest and Money in 1936. Meaning of Macroeconomics It is the study of aggregates or groups or the entire economy such as gross domestic product, total employment, aggregate demand, aggregate supply, total savings, general price level, etc. Definition of Macroeconomics According to Shapiro, “ Macro economics deals with the functioning of the economy as a whole .” Boulding says, “Macro economic theory is that part of economics which studies the over all averages and aggregates of the system .”

5. Nature of Macroeconomics Macroeconomics is the study of aggregates or averages covering the entire economy, such as total employment, national income, national output, total investment, total consumption, total savings, aggregates demand, and general price level, wage level, and cost structure. It is concerned with the problem of unemployment, economic fluctuations, inflation or deflation, international trade, and economic growth. It is the study of the causes of unemployment, and the various determinant of employment.

6. Difference Between Microeconomics and Macroeconomics Micro Economics Macro Economics It is studies individual units of an economy. It studies the economy as a whole. Microeconomic variables such as consumer demand or producers supply. Macroeconomic variables such as national income, total output, total investment, aggregate demand, aggregate supply etc. It deals with micro problems such as determination of price of a commodity, a factor of production, and satisfaction of consumer. It deals with problems at macro level like employment, trade cycles, international trade etc. Price is the basic parameter of microeconomics. Income is the basic parameter of macroeconomics. The concept of microeconomics are independent concepts. The concepts of macroeconomics are interdependent on one to another. Objectives of microeconomics is profit motive. Objectives of macroeconomics is to maintain price stability and full employment in the economy. Method of study in microeconomics is “Partial equilibrium analysis". Method of study in macroeconomics is “general equilibrium analysis”. Macroeconomics decision are taken by individual economic agents for maximization of personal gain. Macroeconomics decision are taken macro level institutional l agent play significant role. They focus on the maximization of social welfare

7. Importance of Macroeconomics To understand the working of the Economy Macroeconomics for Accelerating Economics growth Understanding Business cycles Formulating Government’s Macroeconomic Policies Individual Decision – Making Importance in B usiness Decisions

8. Limitation of Macroeconomics Too much of generalisation Aggregate tendency may not affect all sectors equally    The fallacy of composition To Regard the Aggregates as Homogenous    Indiscriminate Use of Macro Economics Misleading Statistical and Conceptual Difficulties

9. The circular flow of income or the circular flow model It refers to the flow of goods and services among the various sectors of the economy, balanced by the flow of monetary payments made in exchange for those goods and services . The circular flow income is called so because the movement of income and expenditure continues throughout the economy and repeats itself, forming the circular flow of income The two basic aspects of circular flow model Households Firms The model can be viewed from two different perspectives Real Flow Monetary Flow

10. Circular Income Flow in a Two Sectors Economy

11. Circular Income Flow in a Three Sectors Economy

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