Macroeconomics Lecture 1
PRINCIPLES OF MACROECONOMICS
LECTURE 1: INTRODUCTION
Definition of Macro economics
Macroeconomics is the study of the behaviour of large collections of economic agents (aggregates). It is the study of the economy as a whole. It focuses on explaining economic changes that affect many households, firms, and markets simultaneously. Some of the important macroeconomic questions are: Why is income high in some countries while it is low in others? why do prices rise rapidly sometimes and are stable at other times? Why does production and employment rise in some years and decline in others? What can the government do to increase economic growth, lower inflation and increase employment?
By contrast, microeconomics deals with the economic decisions of individuals (a typical consumer, a single firm, etc.) and how they interact with one another in the market. For example: the decision by a firm to buy or not a particular machine used in its production process is a microeconomic problem. The effect of a decrease in the interest rate on the saving decisions of Kenyan households is a macroeconomic problem.
Therefore, the objective of macroeconomics is to explain some features of an economy as a whole, and toward this end, macroeconomists collects data on many aggregate variables and try to create theoretical models that can explain the behavior of such variables.
In macroeconomics, 3 aggregate variables are normally very important to describe the economic situation in a given economy/country: GDP (Gross Domestic Product: the value of goods and services produced in a country in a given period of time), the Inflation Rate (the percentage change of the general level of prices from one period to another) and the Unemployment Rate (how many people in the labour force are unemployed in a given period of time, in percentage).
We shall now explore some of these important macro variables in more detail.
National Income
National Income refers to the monetary value of the flow of
LECTURE 1: INTRODUCTION
Definition of Macro economics
Macroeconomics is the study of the behaviour of large collections of economic agents (aggregates). It is the study of the economy as a whole. It focuses on explaining economic changes that affect many households, firms, and markets simultaneously. Some of the important macroeconomic questions are: Why is income high in some countries while it is low in others? why do prices rise rapidly sometimes and are stable at other times? Why does production and employment rise in some years and decline in others? What can the government do to increase economic growth, lower inflation and increase employment?
By contrast, microeconomics deals with the economic decisions of individuals (a typical consumer, a single firm, etc.) and how they interact with one another in the market. For example: the decision by a firm to buy or not a particular machine used in its production process is a microeconomic problem. The effect of a decrease in the interest rate on the saving decisions of Kenyan households is a macroeconomic problem.
Therefore, the objective of macroeconomics is to explain some features of an economy as a whole, and toward this end, macroeconomists collects data on many aggregate variables and try to create theoretical models that can explain the behavior of such variables.
In macroeconomics, 3 aggregate variables are normally very important to describe the economic situation in a given economy/country: GDP (Gross Domestic Product: the value of goods and services produced in a country in a given period of time), the Inflation Rate (the percentage change of the general level of prices from one period to another) and the Unemployment Rate (how many people in the labour force are unemployed in a given period of time, in percentage).
We shall now explore some of these important macro variables in more detail.
National Income
National Income refers to the monetary value of the flow of