Macro Econs Lecture fro Senior HS Students

Lesson

1. Unit 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

8. 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.

9. While attention is usually focused on the unemployment of  labor , any of the four factors of production can suffer unemployment. 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 standard s.

10. Economic Causes for Unemployment (more on this later) Structural Unemployment : This happens when people’s skills don’t match the jobs available. For example, if new technology replaces old jobs, people with outdated skills might struggle to find work. Frictional Unemployment : This is when people are temporarily out of work while they’re looking for a new job or starting their first job. It’s a normal part of job changes. Seasonal Unemployment : This occurs when jobs are only available during certain times of the year. For example, ski instructors may be unemployed during the summer. Cyclical Unemployment : This happens when the economy is doing poorly, and there aren’t enough jobs for everyone. When the economy gets better, this type of unemployment usually decreases.

11. Costs of Unemployment- Economic Costs Loss of income for unemployed people:   Unemployed individuals lose their earnings, like someone who is laid off from their job and can’t afford basic necessities. Loss of tax revenue for the government:   With fewer people working, the government collects less income tax, similar to a city experiencing lower tax revenue due to widespread job losses. Costs to the government of unemployment benefits:   The government spends money on unemployment benefits, such as unemployment insurance payments to individuals without jobs.

12. Costs to the government for dealing with social problems resulting from unemployment:   Increased spending on social services, like more funding for mental health services due to rising stress and depression among the unemployed. Larger budget deficit or smaller budget surplus:   Higher government spending combined with lower tax revenues may lead to a deficit, similar to a country spending more than it earns. More unequal distribution of income:   Unemployment can widen income gaps, like wealthy individuals experiencing minimal financial impact compared to lower-income unemployed people. Unemployed people may have difficulties finding work in the future:   Skills may become outdated, making it harder for long-term unemployed individuals to find new jobs.

13. Costs of Unemployment- Personal And Social Costs Personal problems:   Unemployment can lead to stress and decreased self-esteem, like someone feeling anxious and demoralized after losing their job. Greater social problems:   Higher crime rates and social unrest can increase as unemployment rises, such as an increase in thefts in areas with high joblessness.

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).