BASIC MACROECONOMICS

BASIC INTRODUCTION TO MACROECONOMICS,
TOOLS AND TERMINOLOGIES
By- Rhit Srivastava
MBA –PM(05)
IIHMR

Economics
• Economics is the social science that studies economic activity to gain an understanding of the processes that govern the production, distribution and consumption of goods and services in an exchange economy

Types of economics
• Macro economics :
Concentrate on large picture of economy.

• Microeconomics:
•

Microeconomics deals with behavior of individual market and the business, consumer investors and worker that make up the economy.

Basic Macroeconomics Terminology
• Inflation:
 An upward movement of prices from one year to the next year.
 Measured by % change in price indices.
 Consumer price index:

Calculated by pricing a basket of goods & services purchased by a typical household. Includes prices of items like food, clothing ,shelter ,fuel ,transportation & college tuition.
 Producer price index: Based on a number of raw material.
 GDP Deflator

• RECESSION :

UNEMPLOYMENT
The unemployment rate = no. of unemployed persons/ no. pf people in the labor force

THE RATE OF ECONOMICS GROWTH
• Measured by GDP.
• GDP: Market value of the final goods & services

produce in a country.
• GDP MEASUREMENT:
 Flow of product approach/expenditure approach:
Product consumed by household + investment expenditure by business + Government purchase + net export( import-export)

• Flow of cost approach :
• Wages of workers + Rent property owner +
Interest for lenders + Profits for firms.
• Actual vs. Potential GDP:

What we can produce What a economy can maximum produce without causing inflation • Actual GDP < POTENTIAL GDP
RECESSIONARY RANGE OF ECONOMY

• ACTUAL GDP> POTENTIAL GDP
RISK OF INFLATION
 NOMINAL VS. REAL GDP:

MEASURED IN
MARKET PRICES,
CAN NOT BE
CHANGE

NOMINAL GDP
ADJUSTED BY
INFLATION

• GDP DEFLATOR:
• NOMINAL GDP/ REAL GDP
• (another valuable inflation index besides cpi n ppi)
BUSSINESS CYCLE & ECONOMIC GROWTH :
• Recurring ups and