Wednesday, July 17, 2019

INTRODUCTION TO MACRO ECONOMICS FOR PLUS TWO FIRST PART


  • INTRODUCTION 1
    INTRODUCTORY MACRO ECONOMICS PLUS TWO
    SHASHI AGGARWAL ECONOMICS AND LAW CLASSES
  • MEANING OF MACRO ECONOMICS
  1. THE TERM MACRO HAS ORIGIN IN THE GREEK TERM MAKROS WHICH MEANS LARGE
  2. LARGE MEANS THE WHOLE OF THE ECONOMY
  3. MACRO ECONOMICS IS DEFINED AS THAT BRANCH OF ECONOMICS WHICH STUDIES ECONOMIC ISSUES OR ECONOMIC PROBLEMS AT THE LEVEL OF AN ECONOMY AS A  WHOLE.
  4. M.H. SPENCER,” MACRO ECONOMICS IS CONCERNED WITH THE ECONOMY AS WHOLE OR LARGE SEGMENTS OF IT. IN MACRO ECONOMICS,ATTENTION IS FOCUSED ON SUCH PROBLEMS AS THE LEVEL OF UNEMPLOYMENT,THE RATE OF INFLATION,THE NATION’S TOTAL OUTPUT AND OTHER MATTERS OF ECONOMY WIDE SIGNIFICANCE.
  5. SHAPIRO,” MACRO ECONOMICS IS CONCERNED WITH THE ECONOMY AS WHOLE/
  6. MACRO ECONOMIC STUDIES ECONOMIC PROBLEM FROM THE POINT OF VIEW OF ENTIRE ECONOMY E.G AGGREGATE CONSUMPTION .AGGREGATE EMPLOYMENT,NATIONAL INCOME,GENERAL PRICE LEVEL.
  7. IT STUDIES SUCH ECONOMIC QUESTION THAT CONCERN THE WELFARE OF ALL RESIDENT OF A  COUNTRY
  • THESE QUESTIONS RELATE TO :
  1. EMPLOYMENT OF THE RESIDENTS
  2. GROWTH OF OUTPUT
  3. PROBLEM OF INFLATION AND DEFLATION
  4. ALSO STUDIED HOW THE GOVERNMENT CAN IMPROVE THE SATE OF ECONOMY.
  • MEANING OF MICRO ECONOMICS
  1. MICRO IS DERIVED FROM GREEK WORD”MIKROS” WHICH MEANS SMALL.. THE CONCEPT  WAS INTRODUCED BY PROF RAGNER BUT DEVELOPED BY MARSHALL
  2. STUDY OF THE ECONOMIC ACTIONS OF INDIVIDUALS
  3. MICRO MEANS MILLIONTH PART IT DEALS WITH SMALL PART OR SMALL COMPONENT OF THE ECONOMY
  4. IT IS BRANCH OF ECONOMIC ANALYSIS WHICH STUDIES THE ECONOMIC BEHAVIOR OF THE INDIVIDUAL UNIT
  5. IT IS TH STUDY OF ONE PARTICULAR UNIT RATHER THAN ALL THE UNITS COMBINED
  6. IN MICRO ECONOMY WE STUDY THE TREE NOT THE FOREST
  7. BOULDING,” MICRO ECONOMICS IS THE STUDY OF PARTICULAR FIRM,PARTICULAR HOUSEHOLD,INDIVIDULA PRICE,WAGE ,INCOME,INDUSTRY AND PARTICULAR COMMODITY

  • DIFFERENCE
  • BASIS OF THE STUDY:-
  • MICRO ECONOMICS : STUDIES PROBLEMS OF SCARCITY AND CHOICE AT THE LEVEL OF INDIVIDUAL,A HOUSEHOLD,A FIRM AND OR AN INDUSTRY’. HOW A CONSUMER EXERCISE HIS CHOICE IN SUCH A WAY THAT HE MAXIMMISES HIS SATISFACTION WITH GIVEN INCOME
  • MACRO ECONOMCS:-STUDIES THE PROBLEMS OF SCARCITY AND CHOICE AT THE LEVEL OF THE ECONOMY AS A WHOLE. CONCERNED WITH HOW THE NATIONAL RESOURCES ARE USED  SO THAT THE WELFARE OF  ALL THE RESIDENTS IS MAXIMISED
  • DIFFERENCE IN OBJECTIVES :
  • AIM OF MICRO ECONOMICS IS TO STUDY THE PRINCIPLES,PROBLEMS AND POLICIES RELATING TO THE OPTIMUM ALLOCATION OF RESOURCES
  • AIM OF MACRO ECONOMICS IS TO STUDY THE PRINCIPLES,PROBLEMS AND POLICIES CONCERNING FULL EMPLOYMENT AND GROWTH OF THE RESOURCES
  • ECONOMIC VARIABLE :
  • MICRO ECONOMICS USES MICRO ECONOMIC VARIABLE SUCH AS CONSUMER DEMAND OR PRODUCER’S SUPPLY.
  • MACRO ECONOMICS USES MACRO ECONOMIC VARIABLES SUCH AS AGGREGATE DEMAND AND AGGREGATE SUPPLY
  • DEGREE OF AGGREAGTION: MICRO ECONOMICS STUDIES PROBLEM RELATING TO A SINGLE ECONOMIC UNIT LIKE A FIRM OR SMALL GROUP OF ECONOMIC UNITS. WHILE IN MICRO ECONOMICS AGGREGATION IS CONFINED ONLY TO ONE COMMODITY OR ONE MARKET
  • MACRO ECONOMICS STUDIES THE ECONOMIC PROBLEMS OF ALL THE FIRMS IN AN ECONOMY. TO EXAMINE STRUCTURAL CHANGES IN THE ECONOMY ACTIVITY IN AGRICULTURAL SECTOR,INDUSTRIAL SECTOR AND SERVICE SECTOR SEPARATELY
  • MICRO ECONOMICS STUDIES EQUILIBRIUM OF AN INDUSTRY. IT IS AN AGGREGATION OF ALL THE FIRMS PRODUCING A PARTICULAR COMMODITY
  • MACRO ECONOMICS:- STUDIES EQUILIBRIUM OF THE ECONOMY AS WHOLE. AGGREGATION OF ALL THE ECONOMIC UNITS OF THE ECONOMY

  • DIFFERENT SET OF ASSUMPTIONS:ARE BASED ON A DIFFERENT SET OF ASSUMPTIONS. MICRO ECONOMICS IT IS ASSUMED THAT THERE IS FULL EMPLOYMENT IN THE COUNTRY,TOTAL OUTPUT AND TOTAL EXPENDITURE ARE FIXED.
  • MACRO ECONOMICS ASSUMES THAT THERE IS OPTIMUM ALLOCATION OF THE RESOURCES IN THE COUNTRY.
  • CENTRAL ISSUE:-
  • MICRO ECONOMICS : ALLOCATION OF THE RESOURCES IS THE CENTRAL ISSUE
  • MACRO ECONOMICS:- DETERMINATION OF THE OVERALL LEVEL OF OUTPUT
  • METHOD OF STUDY:-
  • MICRO ECONOMICS: PARTIAL EQUILIBRIUM
  • MICRO ECONOMICS : GENERAL EQUILIBRIUM
  • ECONOMIC AGENTS:-AT THE MICRO LEVEL ECONOMIC DECISIONS ARE TAKEN BY INDIVIDUAL ECONOMIC UNITS WHILE AT MACRO LEVEL INSTITUTIONAL AGENTS PLAY A SIGNIFICANT ROLE
  • ANALYTICAL DIFFERENCE:
  • MICRO ECONOMICS DEALS WITH THE STUDY OF BEHAVIOR OF ECONOMIC VARIABLES IN EQUILIBRIUM POSITIONS WHERE AS MACRO ECONOMICS DEALS WITH THE STUDY OF THE BEHAVIOR OF THE ECONOMIC AGGREGATE IN DISEQUILIBRIUM POSITION
  • DIFFERENCE RELATING TO CHANGE: MANY ECONOMIC UNITS MAY CHANGE FROM MICRO POINT OF VIEW BUT REMAIN UNCHANGED FROM MACRO POINT OF VIEW
  • MICRO AND MACRO PARADOX:
  • WHAT IS LOGICAL AT THE MICRO LEVEL MAY NOT BE LOGICAL AT MACRO LEVEL
  • FOR EXAMPLE  IF AN INDIVIDUAL SAVES MORE,HE ADDS TO HIS FUTURE PROSPERITY BUT IF ALL THE PEOPLE IN AN ECONOMY SAVE MORE AND SPEND LESS,DEMAND FOR GOODS AND SERVICES MAY DECLINE. SO INVESTMENT MAY DECLINE,PRODUCTION AND EMPLOYMENT LEVEL MAY FALL. DRIVEN TOWARDS POVERTY
  • CONCLUSION
  • PROF BOULDING EXPLAINED THE DIFFERENCE BETWEEN MICRO AND MACRO ECONOMIC BY GIVING AN EXAMPLE OF TREE AND FOREST
  • FOREST IS COMPOSED OF MANY TREES SO ECONOMY IS AGGREGATION OF MANY INDIVIDUALS
  • DIFFERENCE BETWEEN TREE AND FOREST :
  1. INDIVIDUAL TREE MAY DIE BUT THE FOREST WILL GO FOREVER
  2. DIFFICULT OT BURN A TREE BUT FOREST ARE QUICK TO CATCH FIRE
  3. AN INDIVIDUAL TREE HAS NO IMPACT ON THE CLIMATE OF THE NEIGHBORHOOD BUT A FOREST DOES
  • RELATION BETWEEN MICRO AND MACRO
  • BOTH ARE OF GREAT SIGNIFICANCE
  • BOTH ARE COMPLEMENTARY TO ONE ANOTHER. STUDY OF ONE IS ESSENTIAL FOR THE STUDY OF OTHERS
  • MICRO ECONOMIC ANALYSIS DEPENDS ON MACRO ECONOMIC ANALYSIS:-BASED ON THE ASSUMPTIONS OF OTHER THINGS BEING EQUAL, IT MEANS INFLUENCE OF MACRO ECONOMICS ON MICRO ECONOMICS.FOR EXAMPLE THE RATE OF WAGES PAID BY A FIRM TO ITS WORKERS DEPENDS ON WAGES PAID BY THE OTHER FIRMS
  • STUDY OF MICRO ECONOMICS ANALYSIS IS NECESSARY FOR MACRO ECONOMIC ANALYSIS: ECONOMY AS A WHOLE CONSIST OF THE AGGREGATE OF MANY ECONOMIC UNITS. TO UNDERSTAND THEIR BEHAVIOR ESSENTIAL TO KNOW THE BEHAVIOR OF DIFFERENT UNITS.
  • PARTIAL AND GENERAL EQUILIBRIUM
  • PARTIAL EQUILIBRIUM REFERS TO EQUILIBRIUM IN ONE MARKET ( SAY COMMODITY MARKET ) ON THE ASSUMPTION NO CHANGE IN OTHER MARKETS. METHOD OF STUDY IN MICRO ECONOMICS
  • GENERAL EQUILIBRIUM REFERS TO SIMULTANEOUS EQUILIBRIUM IN ALL THE MARKETS IN THE ECONOMY. METHOD OF STUDY IN MACRO ECONOMICS
  • SAVING IS VIRTUE OR A VICE
  • FROM INDIVIDUAL IT IS VIRTUE. BY MAKING SAVING HE CAN HAVE REGULAR INCOME IN THE FORM OF INTEREST BUT IF EVERY BODY SAVES THEN IT IS VICE. FALL IN AGGREGATE DEMAND CAUSE FALL IN INVESTMENT  AND FALL IN PRODUCTION AND ECONOMY GOING INTO DEPRESSION



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