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

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Introduction to Macroeconomics

Andri Wijanarko,SE,ME

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Definition of Economics

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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.

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

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Analyzes the consequences ofgovernment regulation on marketefficiency

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

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

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

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

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

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Definition of Economics - Conclusion

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

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Definition of Economics - Keywords

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

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Exponent of Modern Economics

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Exponent of Modern Economics #1

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

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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

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

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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

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Great Depression 1930s

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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

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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%

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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.

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Great Depression #4

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Great Depression #5

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Great Depression #6

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Root of Macroeconomics

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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.

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

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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.

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Three of the major concerns ofmacroeconomics are:

Inflation

Output growth

Unemployment

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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.

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

Fiscal policy

Monetary policy

Growth or supply-side policies

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Fiscal policy refers togovernment policies concerningtaxes and spending.

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

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

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Components of Macroeconomics

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Components of Macroeconomics #1

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

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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

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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.

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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.

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See you next time...

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

Yvone Quijano

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

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