Introduction to Macro Economics

• Basis of Macroeconomic study are these questions
• Will prices as a whole rise or fall
• inflation, purchasing power of money etc
• Employment in country or sector wise analysis
• agriculture has most employed people in India, thus it signifies the need to move people towards other sectors
• Performance analysis of Economy
• Various Indexes (new and old)
• State policy and public demands for Economy welfare
• Budget, reforms etc.

• Generally the whole economy of a country moves along 
• Rise or fall in any factor [Output level, Price Level, Employment Level etc] is experienced by whole market
• This means change experienced in individual factor of an "economy as whole" has some what similar effect across different sectors and production units

• Now if these factors also bears close relationship among each other, the task of analysis becomes easy
• We generally analyse how employment levels and production levels are related to price, profit, interest, wages etc
• As we see the economy as a whole has same trend as dis-aggregate, we can afford to consider an imaginary product which is representative of all G&S

• Other way of analyzing economy as a whole is by observing it as composed of distinct sectors
• This is helpful when we want to analyse the inter-dependency among sectors, how they are related etc. 
• So way of analyzing depends on cases

• The Representative Good dissolves many vital distinctive characteristics of Individual goods
• Instead of taking single RG we take generally Agricultural, Industrial, Services as representative goods
• Here production techniques of G&S in each category is some what similar but drastically different from each other

How Microeconomics is different from Macroeconomics

• Microeconomics focuses on Individual economic agent's behavior and interests
• They may be in line or against the welfare of economy as a whole
• The macro phenomenon cannot be changed by the individual agent's
• Thus macro things are considered absent or constant in microeconomics study

Why Macroeconomics is needed ? 

• It addresses the situations facing economy as a whole. Means measures have to be followed by all
• The statement of Adam smith : If all economic agents do business selfishly, for wealth and welfare of country no need to look economy as a whole separately, turns out to be false
• In many cases without such intervention market cannot exist
• If market exists Equilibrium cannot be reached
• Many cases society take unselfish decisions for social goals like Education, defence, health, employment, administration, Public distribution etc
• In above case the individual decisions are needed to be modified for aggregate effects
• Thus we study macroeconomic phenomenon 

What it suggests about Macroeconomics ?

• There are some Macroeconomic decision makers
• State or Statutory body like RBI SEBI etc
• These agents have goals as a whole
• There one or more public goals are defined by law or Constitution
• They organize economy resources and direct them towards social goals
• They do not work to maximize the individual interests

How the Macroeconomics born ?

• Classical theory suggests that the person who is looking for job will definitely get employed and all the factories work at their full capacity all the time
• But classical theory got challenged during depression period of 1929 to 1933
• Europe and North America were badly affected
• In US unemployment rate rose from 3% to 25%
• Aggregate output fall by 33%
• Thus it made many factories idle and many people jobless
• Now the effects of unemployment on economy has to be theorized
• John Maynard Keynes in his book : Theory of Employment Interest and Money 1936 reported this a new way
• He examined the working of economy in its entirety and interdependence of various sectors
• Thus subject of Macroeconomics born

Characteristic of a Capitalist

• Means of productions are owned by private owners (Entrepreneurs)
• Goods are produced for sell in market
• Laborers are hired on wages

Revenue = Wage + Interest + rent + profit

Players in an Economy

• Private Firms : Ownership of production
• Government : Facilitator
• Households : Demand creator
• First three are domestic players
• External sector : Export, import, Capital inflow and outflow