A FRAME WORK OF MACRO ECONOMICS

PRESENTED To: Mam Tahira khursheedPRESENTED By : Mubashir Hassan roll# 02

Zaffar Gujjar roll# 09

Qasim Nawaz roll# 28 Waseem Baig roll# 48

Saqib Rubani roll# 53

Hassan Mujtaba roll# 55

MACRO ECONOMICS

Macro economics is largely concern with the behavior of economic aggregate.

E.g. 1.Total national product2.Total investment 3.Exports of entire economy It is also concern with the avg. price of all

goods rather than the price of specific products.

These aggregate results from activities in many different market and from the behavior of different decision makers e.g consumers , government and firms.In macro we add together value of wheat , cotton ,mangoes ,computer , along with the value of all other goods and services produced.Note: In macro economics we study the aggregate national product, average the price of all goods and services and consumed and discuss the general price level for the entire economy usually called price level.

Macroeconomic Variables?

Macroeconomic variables are those variables that are independent from the income levels. They are factors that greatly influence the economic growth. Some of the macroeconomic variables include:

1.GDP,2.Unemployment3.Inflation.

Gross domestic productGross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a year, or other given period of time.

Components of GDP by expenditure

GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).Y = C + I + G + (X − M)

What is the difference between a recession and a depression?

Recession period: “Mild fall in G.D.P”

Depression period: “Severe fall in G.D.P”

INFLATION

The inflation rate measures the percentage change in the average level of prices from the year before . when inflation is above zero, prices are rising. when it is below zero, prices are falling .

If the inflation rate declines but remains positive, prices are rising but at slower rate.

UNEMPLOYMENT

Unemployment occurs when a person who is actively searching for employment is unable to find work.

in simple words we can say measure the friction of labor force that is out of work is called unemployment.

ECONOMIC MODEL

Economic model is made of symbols and equation. Economists build their economic model to express the economic variables.

E.g. G.D.P , Inflation and unemployment.

Economist make models, assume some thing and critically study them.

THERE ARE TWO VARIABLES OF ECONOMIC MODEL

1.Endo-geneous variables: “are those variables that a model tries to

explain”Endo-geneous variables are determine with in

the model and serve as the model output.

2.Exo-geneous variables:are those variables that a model accept as a

given comes from outside the model and serve as a model input.

PURPOSE OF ECONOMIC MODEL

Is to show how the exo-geneous variables effects the endo-geneous variables.

Economic model shows the relationship among the variables in mathematical terms.

MACRO ECONOMIC PROBLEMS:

Undesirable situations that exist in the macro economy, largely because one or more of the macroeconomic goals are not satisfactorily attained. The primary problems are unemployment, inflation, and stagnant growth. Macroeconomic theories are designed to explain why these problems emerge and to recommend corrective policies.

Unemployment:

Unemployment is a problem because:Less output is produced and thus the economy is less able to address the scarcity problem.

The owners of unemployed resources receive less income and thus have lower living standards.

Inflation is a problem because:The purchasing power of financial assets such as money declines, which reduces financial wealth and lowers living standards.

Greater uncertainty surrounds long-run planning, especially the purchase of durable goods and capital goods.

Income and wealth can be haphazardly redistributed among sectors of the economy and among resource owners.

THE BUSINESS CYCLE

Unemployment and inflation tend to vary with business-cycle instability. At some times, unemployment is less of a problem and inflation is more. At other times, unemployment is more of a problem and inflation is less.

Consider how these two problems connect to the two primary phases of the business cycle.

Contraction: The contraction phase of a business cycle is characterized by a general decline in economic activity. Aggregate demand is less, meaning less output is produced, and thus fewer resources are employed. For this reason, unemployment tends to be a key problem. However, because markets are more likely to have surpluses than shortages, inflation tends to be less of a problem.

Expansion: The expansion phase of a business cycle is characterized by a general rise in economic activity. Aggregate demand is higher, production is greater, and more resources are employed. Demand for production often outpaces the ability to supply the production. Under these circumstances, because markets are more likely to have shortages than surpluses, inflation tends to be the primary problem. However, with robust production and jobs aplenty, unemployment tends to be less of a problem