chapter 7 - macroeconomics

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Chapter 7

Macroeconomics

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Chapter 7Macroeconomics

Macroeconomics

- is the study of the economy as a whole

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2 School of Thoughts in Macroeconomics

1.Monetarist

- states that market works best when kept to themselves.

- Adam Smith (1700) believes in Laissez Faire and suggested the “invincible hand”.

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2. Keynesian (John M. Keynes)

- government intervention could significantly improve the performance of the market/economy.

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2. Keynesian (John M. Keynes)

- that during recession (economic contraction) the government must interfere and use the pump-priming solution wherein the government will infuse money in the economy.

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Economic Goals - Macroeconomics

1.Economic Growth2.Full Employment3.Price Stability 4.Sufficiency on International Reserves5.Equitable Income Distribution6.Sustainable Development

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1.Economic Growth- Increase in production of goods and services.- measured though the increase in GDP, in terms of % change of GDP per year.- growth rate could be +, -, 0- typical growth rate is less than 10%- greater than 10% is considered high

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2. Full Employment- All members off the labor force are employed.- Labor force is more or less 30% - 40% of the

population.- However, at any one time, it is not possible that all in the labor force are employed. 100% is near impossible.- But instead maintain a less than 10%

unemployment rate.

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3. Price Stability- Literally price do not change.- However, prices always rise.- Question is whether prices rise gradually or abruptly.- what is gradual? 10% per year; > 10% is considered high.

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4. Sufficiency in International Reserves- Collecting currency particularly strongest.- such as US Dollar, Yen, Pound, and Euro.- used mainly for trade and depends on

importation needs.

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5. Equitable Income Distribution- gap between high income and low income earners.- can be measured using Lorenz Curve

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5. Equitable Income Distribution- gap between high income and low income earners.- can be measured using Lorenz Curve

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6. Sustainable Development- Environment conservation.

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Circular Flow Model of the Economy

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“If you can’t explain it simply, you don’t understand it well

enough.”

- Albert Einstein16

End of

Presentation17

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chapter 7 - macroeconomics

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