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Chapter 1

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7 views

Chapter 1

Uploaded by

mazen abdelmonem
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter 1

An Overview of Macroeconomics
Chapter Outline
1.1 What is Macroeconomics?
1.2 Origins of Macroeconomics
1.3 Macroeconomic Objectives and Policies

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1.1 What is Macroeconomics?

• Economics is the social science that focuses on the


study of the choices made by economic agents.

• The importance of economics stems from scarcity.

Scarce Unlimited
Resources Wants

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Choice
1.1 What is Macroeconomics?

• The study of economics is divided into two main


branches.

Economics

Microeconomics Macroeconomics
- The study of choices - The study of the
made by individuals, economy as a whole.
firms, and government.
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- Certain market or - All markets & sectors
sector
1.1 What is Macroeconomics?
Examples: Micro versus Macro

• Think of the following examples and classify either


as micro or macro

1-What determines how individuals spend their


budgets?

2-What determines level of production in economy?

3-What are the solutions for unemployment?


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4-What are the effects of government policies on the
production of a certain industry?
1.2 Origins of Macroeconomics

• Adam Smith introduced his famous book ‘The


Wealth of Nations’ in 1776, then known as the father
of economics.

• Smith was influenced by the rise of the industrial


sector in Britain in the mid-1700s, and thus believed
in free-market economy (no role for the government
in economy).

• But, the Great Depression of the 1930s in the U.S. 5

can be considered a turning point in economics.


1.2 Origins of Macroeconomics

• Classical school (believing in free-market economy)


was largely criticized.

• John Maynard Keynes introduced his general theory


in 1936, giving a role for the government using its
policies to face economic crises.

• Since the 1930s, the study of economics was


divided into microeconomics and macroeconomics.
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1.3 Macroeconomic Objectives and Policies

• Macroeconomics has two central themes:

1- How to face business cycles (unemployment and


inflation) in the short run?

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1.3 Macroeconomic Objectives and Policies

2- How to sustain economic growth (growth in


output) in the long run?

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Growth In Production
1.3 Macroeconomic Objectives and Policies

• In this way, the major macroeconomic objectives


include:
Low
Unemployment

Relatively Stable
Prices
(Low Inflation)

Sustained
Growth

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Reduced Trade
Deficit
1.3 Macroeconomic Objectives and Policies

• Macroeconomic policies that can be used to achieve


macroeconomic objectives include:

Fiscal Policy Monetary Policy Trade Policy

Use of government Control of the Use of tariff and


spending and quantity of money non-tariff barriers to
taxation to affect and interest rates to affect trade
economic activity affect economic
activity

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