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CHAPTER 10
INTRODUCTION TO
MACROECONOMICS
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DIFFERENCE BETWEEN
MICROECONOMICS AND
MACROECONOMICS
MICROECONOMICS MACROECONOMICS
Studies on individual Studies on national income
income Analyzes total employment
Analyzes demand for and in the economy
supply of labour Deals with aggregate
Deals with household and decisions
firms decisions Studies overall price level
Studies on individual prices Analyzes aggregate
Analyzes demand and demand and aggregate
supply of goods supply
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MACROECONOMIC GOALS
Full Employment
Economic Growth
Price Stability
FOUR
MAJOR
GOALS
Equitable Distribution of Income
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GROWTH
GROWTH FISCAL
FISCAL
MONETARY
MONETARY
POLICY
POLICY POLICY
POLICY
POLICY
POLICY
Contractionary
Contractionary Expansionary
Expansionary Contractionary
Contractionary Expansionary
Expansionary
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THE CONFLICTING
MACROECONOMIC
To achieve full employment
and maintain price stability.
To achieve economic To achieve economic
growth and a equilibrium growth and maintain
in balance of payments. price stability.
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COMPONENTS OF
MACROECONOMY
Supply of Factor of Production
Payment for Factor of Production
Taxes
Taxes
GOVERNMENT
GOVERNMENT
Transfer
payment, Payments
wages
Purchase of goods and services
Payments for goods and services
Export Export
Import Import
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AGGREGATE DEMAND AND
AGGREGATE SUPPLY
AGGREGATE SUPPLY
Overall Price Index - Refers to the total
quantity of output
supplied at alternative
AS price levels during a given
time period, ceteris
paribus.
AGGREGATE DEMAND
P*
- Refers to the total
quantity of output
demanded at alternative
AD price levels during a given
time period, ceteris
paribus.
Y* Yf Real GDP
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AGGREGATE DEMAND AND
AGGREGATE SUPPLY (cont.)
AGGREGATE DEMAND AGGREGATE SUPPLY
Price Price AS2 AS0
AS1
A B
B A
AD1
AD2 AD0
Quantity
Quantity
Movement along AD curve Movement along AS curve
in price level Real GDP in price level Real GDP
(Point B A) (Point A B)
in price level Real GDP in price level Real GDP
(Point A B) (Point B A)
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AGGREGATE DEMAND AND
AGGREGATE SUPPLY (cont.)
AGGREGATE DEMAND AGGREGATE SUPPLY
Price Price AS2 AS0
AS1
A B
B A
AD1
AD2 AD0
Quantity Quantity
Shifts of the aggregate demand curve to Shifts of the aggregate supply curve
right (AD0 to AD1) to right (AS0 to AS1)
Income increases Interest rate decreases
Interest rate decreases Cost decreases
Government expenditures increases
Productivity increases
Taxation decreases
Wealth increases Taxation decreases
Investment increases
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THE END
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