introduction to macroeconomics · introduction to macroeconomics andri wijanarko,se,me...

Company

LOGO

Introduction to Macroeconomics

Andri Wijanarko,SE,ME

andri_wijanarko@yahoo.com

Company

LOGO

Definition of Economics

3

Definition of Economics #1

Paul A. Samuelson

Studies how the prices of labor,capital, and land are set in theeconomy, and how these price areuse to allocate resources.

4

Definition of Economics #2

Explores the behavior of the financialmarkets and analyzed how theyallocate capital to the rest of theeconomy

5

Definition of Economics #3

Analyzes the consequences ofgovernment regulation on marketefficiency

6

Definition of Economics #4

Examines the distribution of income,and suggest ways that the poor canbe helped without harming theperformance of economy

7

Definition of Economics #5

Looks at the impact of governmentspending taxes, and budget deficitson growth

8

Definition of Economics #6

Studies the upswings and downturnsin unemployment and production thatmake up the bussiness cycle, anddevelops government policies forimproving economic growth

9

Definition of Economics #7

Examines the patterns of trade amongnations and analyzes the impact oftrade barrier

10

Definition of Economics #8

Looks at growth in developingcountries, and proposes ways toencourage the efficient use ofresources

11

Definition of Economics - Conclusion

Economics is the study of howsocieties use scarse resources toproduce valuable commodities anddistribute them among differentpeople

12

Definition of Economics - Keywords

Keywords of Economics :a) studyb) societies use scarse resourcesc) produce valuable commoditiesd) distributee) different people

Company

LOGO

Exponent of Modern Economics

14

Exponent of Modern Economics #1

Adam SmithAn Inquiry into the Natures andCauses of the Wealth of Nations(1776)

15

Exponent of Modern Economics #2

Adam Smith• How individual prices are

set• How prices of land, labor

and capital are set• Inquired into the strengths

and weakness of themarket mechanism

Founder of Microeconomics

16

Exponent of Modern Economics #3

John Maynard KeynesGeneral Theory of Employment,Interest and Money (1936)

17

Exponent of Modern Economics #4

Keynes• Theory of what causes

unemployment andeconomic downturns.

• How Investment andconsumption aredetermined

• How central bank managemoney and interest rates

• Why some nations thrivewhile others stagnate

Company

LOGO

Great Depression 1930s

19

Great Depression #1

It was the longest, mostwidespread, and deepestdepression of the 20thcentury.

In the 21st century, the GreatDepression is commonly used as anexample of how far the world'seconomy can decline

20

Great Depression #2

The Great Depressionhad devastating effectsin virtually everycountry, rich and poor.

Personal income taxrevenue, profits andprices dropped, whileinternational tradeplunged by more than50%.

Unemployment in theU.S. rose to 25%, andin some countries roseas high as 33%

21

Great Depression #3

The depression originated in the U.S., starting with the fall in stock prices thatbegan around September 4, 1929 and became worldwide news with the stockmarket crash of October 29, 1929 (known as Black Tuesday). From there, itquickly spread to almost every country in the world.

22

Great Depression #4

23

Great Depression #5

24

Great Depression #6

Company

LOGO

Root of Macroeconomics

26

Root of Macroeconomics #1

Microeconomics examines the behavior ofindividual decision-making units—businessfirms and households.

Macroeconomics deals with the economyas a whole; it examines the behavior ofeconomic aggregates such as aggregateincome, consumption, investment, and theoverall level of prices.

Aggregate behavior refers to the behavior of allhouseholds and firms together.

27

Root of Macroeconomics #2

Macroeconomists often reflect on themicroeconomic principles underlyingmacroeconomic analysis, or themicroeconomic foundations ofmacroeconomics.

28

Root of Macroeconomics #3

Classical economists appliedmicroeconomic models, or “marketclearing” models, to economy-wideproblems.

However, simple classical models failedto explain the prolonged existence of highunemployment during the GreatDepression. This provided the impetusfor the development of macroeconomics.

29

Root of Macroeconomics #4

Three of the major concerns ofmacroeconomics are:

Inflation

Output growth

Unemployment

30

Root of Macroeconomics #5

Keynes believed governments couldintervene in the economy and affect thelevel of output and employment.

During periods of low private demand, thegovernment can stimulate aggregatedemand to lift the economy out ofrecession.

31

Root of Macroeconomics #6

There are three kinds of policy that thegovernment has used to influence themacroeconomy:

Fiscal policy

Monetary policy

Growth or supply-side policies

32

Root of Macroeconomics #7

Fiscal policy refers togovernment policies concerningtaxes and spending.

33

Root of Macroeconomics #8

Monetary policy consists oftools used by the FederalReserve to control the quantity ofmoney in the economy.

34

Root of Macroeconomics #9

Growth policies are governmentpolicies that focus on stimulatingaggregate supply instead ofaggregate demand.

Company

LOGO

Components of Macroeconomics

36

Components of Macroeconomics #1

37

Components of Macroeconomics #2

Transfer payments arepayments made by thegovernment to people who donot supply goods, services, orlabor in exchange for thesepayments.

38

Components of Macroeconomics #3

Households, firms, the government,and the rest of the world all interact inthree different market arenas:

1. Goods-and-services market

2. Labor market

3. Money (financial) market

39

Components of Macroeconomics #4

Households and the government purchasegoods and services (demand) from firms in thegoods-and services market, and firms supplyto the goods and services market.

In the labor market, firms and governmentpurchase (demand) labor from households(supply).

The total supply of labor in the economy depends onthe sum of decisions made by households.

40

Components of Macroeconomics #5

In the money market—sometimes calledthe financial market—householdspurchase stocks and bonds from firms.

Households supply funds to this market in theexpectation of earning income, and alsodemand (borrow) funds from this market.

Firms, government, and the rest of the worldalso engage in borrowing and lending,coordinated by financial institutions.

41

See you next time...

References :a. Economics (Samuelson & Nordhaus)b. Economics (Case, Fair)c. Teaching material adopted from Fernando &

Yvone Quijano