CHAPTER: ONE

INTRODUCTION TO MACROECONOMICS

1.1 Meaning of Macroeconomics

General knowledge:
 Modern economics have divided the whole economic theories into two
parts: Micro and Macro.
 These words are first used by Ragner Frish in 1993 AD.
 The term 'Micro' derived from Greek words 'Mikros' which means 'small'
 The term 'Macro' also derived from Greek words 'Makros' which means
'large'
Macroeconomics is define as the branch of economics which deals with
aggregate economic problems. Thus, Macroeconomics is the study of economy
as a whole. It deals with aggregate economic variables such as total
employment, total output, total investment, total consumption, national income
etc. and their relationship.
According to K.E. Boulding,“ Macroeconomics deals not with individual
quantities as such but with aggregates of these quantities, not with individual
income but with national income, not with individual price but with the general
price level, not with individual output but with national output”.
It also deals with national economic goals such as economic stabilization and
growth, full employment, inflation and deflation, international trade and budget
deficit. It is also known as ‘Income and Employment Theory’ as it focuses on
determination of national income and employment.

1.2 Scope of Macroeconomics.

The area covered by Macroeconomics is called scope of Macroeconomics.
The scope of macroeconomics can be explained as below:
a. Theory of National Income: Macroeconomics mainly studies about the
concept and calculations of National income, its different elements, and
methods of calculation.
b. Theory of Employment: Macroeconomics studies Problems relating to
employment. It studies different factors determining the level of
employment. It also studies the different employment theories such as
classical employment theory and Keynesian employment theory.
c. Theory of Distribution: Macroeconomics also studies about distribution of
National income. It studies different components of aggregate economic
variables such as aggregate consumption, saving, investment etc.
 d. Theory of Inflation and Trade Cycle: Macroeconomics also studies about the
macroeconomic problems such as inflation, deflation and trade cycle, its
causes and remedies. It also studies different fiscal and monetary policies.
e. Theory of Economic Growth: Macroeconomics studies mainly focuses on
economic growth in economy. So, it studies the theories of economics
growth. It also explain various issues relating the economic growth and
development
f. Theory of International Trade: Macroeconomics also studies trade among
different countries. Theory of international trade, tariff and protection, etc.
are also the subject matter of macroeconomics.

1.2.1 Static, comparative and dynamic analysis

A. Static analysis: Static macro-economic analysis studies a set of relation when
they are in equilibrium at a given point of time. It does not explain how the
equilibrium has been brought about. It does handle the problem of change
through time. It implies that the equilibrium is constant through time. Simple
Macro-static can be explained by taking the example of final equilibrium of the
economy.
Y=C+I
Where,
Y= Aggregate income
C= Aggregate consumption
I= Aggregate investment
The concept of macro static has been shown on figure.
figure…..
 B. Comparative analysis: Comparative analysis is the second way of analyzing
macro-economic problems. Here we see what happens in the equilibrium
when some variables change. It compares the new and old equilibrium
attained by the economy. But it does not deal with the transitional period and
process involve in the movement from one equilibrium point to another. For
example, the concept of macro comparative has been shown on figure as
equilibrium change due to change in autonomous investment in the economy.
Figure….

C. Dynamic Analysis:
It Studies the process of breaking and attaining equilibrium points. It
analyses the macroeconomic variables from motion picture. It involves
the analysis of period of time rather than point of time. In the other
words macro dynamic analysis studies, the time and path taken by the
macro economic variables to move from one equilibrium to another
 It answers all the following questions:
 What are the causes responsible for breaking initial
equilibrium point?
 What are the causes responsible for attaining final
equilibrium point?
 What is the actual process in between them?