NATURE ,SCOPE OF MACRO ECONOMICS AND MAJOR MACROECONOMIC ISSUES

Ø  NATURE ,SCOPE OF MACRO ECONOMICS AND MAJOR MACROECONOMIC ISSUES
A CONCEPTUAL SERIES FOR COMPETITIVE EXAM FOR COMMERCE AND MANAGEMENT LEC 2

Ø  MACRO ECONOMICS

Ø  MEANING AND DEFINITION OF MACRO ECONOMICS

• IT HAS ITS ORIGIN IN THE GREEK LANGUAGE TERM ‘ MAKROS’ WHICH MEANS LARGE. IT STUDIES ECONOMIC PROBLEMS FROM THE POINT OF VIEW OF ENTIRE ECONOMY,E.G. AGGREGATE EMPLOYMENT, NATIONAL INCOME, GENERAL PRICE LEVEL ETC. STUDY OF THE ECONOMIC SYSTEM AS WHOLE.
• ACCORDING TO M.H. SHAPIRO,” MACRO ECONOMICS DEALS WITH THE FUNCTIONING OF ECONOMY AS A WHOLE”
• DEFINITION OF MACROECONOMICS
• MACRO ECONOMICS IS THAT BRANCH OF ECONOMICS THAT STUDIES THE BEHAVIOR AND PERFORMANCE OF AN ECONOMY AS WHOLE. IT FOCUSES ON THE AGGREGATE CHANGES IN THE ECONOMY SUCH AS UNEMPLOYMENT,GROWTH RATES,GROSS DOMESTIC PRODUCT ETC
• BOULDING,” MACRO ECONOMIC THEORY IS THAT PART OF ECONOMICS WHICH STUDIES OVER ALL AVERAGES AND AGGREGATES OF THE SYSTEM.

Ø  FEATURES

·         STUDY OF AGGREGATES: CONCERNED WITH CONCEPT SUCH AS AGGREGATE DEMAND,AGGREGATE SUPPLY,TOTAL OUTPUT,GENERAL PRICE LEVEL

·         LUMPING METHOD: GENERAL PRICE LEVEL NOT PRICES OF INDIVIDUAL PRODUCT

·         GENERAL EQUILIBIRUM, ANALYSIS:-BEHAVIOR OF AGGREGATES AND THEIR INTERDEPENDENCE. FOR EXAMPLE A CHANGE IN INCOME LEVEL RESULT IN CHANGES IN SAVING AND MAY INFLUENCE INVESTMENT

·         USEFUL TO GOVERNMENT FOR FORMULATION AND IMPLEMENTATION OF VARIOUS POLICIES

·         A MAJOR TASKS IS THE DETERMINATION OF NATIONAL INCOME ALSO STUDIES THE FACTORS WHICH INFLUENCE NATIONAL INCOME AND CAUSE OF TRENDS

·         GIVES AN OVERALL VIEW OF THE ECONOMY

·         MONETARY ECONOMICS

·         SHORT RUN NATURE OF MACRO ECONOMY:NATIONAL OUTPUT OR AGGREGATE SUPPLY IS CONSTANT IN SHORT PERIOD. LABOUR IS THE ONLY VARIABLE FACTOR IN THE SHORT RUN AND OUTPUT CAN BE INCREASED BY INCREASING THE LEVEL OF EMPLOYMENT.

·         MACRO ECONOMICS ONLY INSTITUTIONAL BECAUSE WE COULD UNDERSTAND ITS NATURE BY EXAMINING THE ECONOMIC FACTORS SUCH AS RATE OF INTEREST,SAVING ,INVESTMENT ETC

·         LAID STRESS ON STATE INTERVENTION

·         GENERAL THEORY BECAUSE IT STUDIES ALL LEVEL OF EMPLOYMENT AND ALSO DISCUSS INFLATION,DEFLATION,UNEMPLOYMENT AND FULL EMPLOYMENT, AND ALSO STUDY TOTAL EMPLOYMENT,TOTAL OUTPUT AND OTHER AGGREGATE VARIABLES

·         BASED ON SOUND PRACTICAL EXPERIENCES

Ø  SCOPE OF MACRO ECONOMICS

´  SCOPE REFERS TO THE ISSUES,PROBLEMS AND PARAMETERS OF ECONOMICS THAT ARE INCLUDED IN MACRO ECONOMICS:-

1.     NATIONAL INCOME:-

a.    CONCEPTS OF NATIONAL INCOME AND ITS DIFFERENT ELEMENTS

b.    METHODS OF MEASUREMENTS AND SOCIAL ACCOUNTING

2.     THEORY OF EMPLOYMENT:-LEVELS OF EMPLOYMENT,EFFECTIVE DEMAND,AGGREGATE SUPPLY,AGGREGATE CONSUMPTION,AGGREGATE INVESTMENTS

3.     THEORY OF MONEY:-FUNCTIONS OF MONEY AND ITS THEORIES,BANKING AND FINANCIAL INSTITUTIONS . ALSO STUDIES THE EFFECT OF CHANGES IN DEMAND FOR AND SUPPLY OF MONEY ON THE LEVEL OF UNEMPLOYMENT

4.     SCOPE OF MACRO ECONOMICS

5.     THEORY OF GENERAL PRICE LEVEL:-DETERMINATION OF CHANGES IN THE PRICE LEVEL,PROBLEMS OF INFLATION AND DEFLATION

6.     ECONOMIC GROWTH AND DEVELOPMENT:-GROWTH PROBLEMS OF UNDER DEVELOP ECONOMIES. ALSO STUDIES PROBLEMS RELATING ECONOMIC GROWTH,INCREASE IN PER CAPITA INCOME

7.     BUSINESS CYCLES:-STUDIES THE CYCLICAL MOVEMENT

8.     BUDGETARY DEFICIT AND FISCAL POLICY:-CENTRAL ISSUES

9.     THEORY OF INTERNATIONAL TRADE:THEORY OF INTERNATIONAL TRADE,TARIFF PROTECTION ETC

10.  INTEREST RATES AND MONETARY POLICY:-IMPORTANT AREA

11.  MAJOR MACRO ECONOMIC ISSUES

12.  EMPLOYMENT AND UNEMPLOYMENT:-UNEMPLOYMENT IS NOT FEATURE OF LESS DEVELOPED COUNTRIES LIKE INDIA ALONE.IT IS AN EQUALLY IMPORTANT ISSUE FOR DEVELOPED COUNTRIES. ONLY THE NATURE OF UNEMPLOYMENT DIFFER AMONG DEVELOPED AND LESS DEVELOPED NATIONS. IN LESS DEVELOPED IT OCCURS LACK OF PRODUCTIVE CAPACITY AND IN DEVELOPED NATIONS IT IS CYCLICAL AND OCCUR DUE TO LACK OF DEMAND.UNEMPLOYMENT  REFERS TO INVOLUNTARY IDLENESS OF RESOURCES INCLUDING MANPOWER. HERE THE ACTUAL OUTPUT WILL BE LESS THAN POTENTIAL OUTPUT. SO ONE OF THE OBJECTIVE OF THE GOVERNMENT POLICY IS TO ENSURE FULL EMPLOYMENT

Ø  MAJOR ECONOMIC ISSUES

1. ECONOMIC GROWTH:-GROWTH AND DEVELOPMENT ARE THE KEY PARAMETERS OF MACRO ECONOMICS.THE TREND IN THE NATION’S TOTAL OUTPUT OVER THE LONG PERIOD IS KNOWN AS ECONOMIC GROWTH.IT REFERS TO EXPANSION OF ECONOMY’S PRODUCTION CAPACITY. GROWTH IS MEASURED BY BY THE ANNUAL RATE OF INCREASE OF PER CAPITA INCOME .THREE MAJOR SOURCES OF GROWTH:-

1. THE GROWTH OF LABOUR FORCES
2. CAPITAL FORMATION
3. TECHNOLOGICAL PROGRESS

2.     ECONOMIC GROWTH OF SHOULD NOT BE ACHIEVED AT THE COST OF ENVIRONMENTAL DEGRADATION,EXCESSIVE EXPLOITATION OF NATURAL RESOURCES ETC.GROWTH AND DEVELOPMENT MUST REFLECT IN IMPROVING STANDARD OF LIVING AND GULF BETWEEN POOR AND RICH MUST BE NARROW.

3. BUSINESS /TRADE CYCLE:-IT REFERS TO PERIODIC FLUCTUATIONS IN THE LEVEL OF ECONOMIC ACTIVITIES. WHEN ECONOMIC ACTIVITY SLOWS DOWN IT IS CALLED A PHASE OF RECESSION,REACHES ROCK BOTTOM IT IS CALLED DEPRESSION,WHEN IT STARTS PICKING UP RECOVERY AND PEAKS UP IT IS CALLED BOOM. IN BOOM IS A PHASE OF RISING PROFIT,INVESTMENT TEND TO BE HIGH,HIGH INFLATION AND EMPLOYMENT IS HIGH BUT IN THE PERIOD OF DEPRESSION : LOW PROFIT,REDUCED INVESTMENTS AND HIGH RATE OF UNEMPLOYMENT. WE STUDY THE CAUSES AND SOLUTION TO RECTIFY THESE PROBLEMS.
4. INFLATION:-SITUATION OF CONSTANTLY RISING PRICES OF COMMODITIES AND FACTORS OF PRODUCTION. VALUE OF THE MONEY FALLS AND REAL PURCHASING POWER IS REDUCED. A MODEST PRICE INCREASE IS CONDUCTIVE TO ECONOMIC GROWTH. HYPER INFLATION IS NOT GOOD FOR THE ECONOMY SO THE GOVERNMENT POLICY AIMS TO ENSURE PRICE LEVEL STABILITY
5. STAGFLATION:-MOST MODERN MIXED ECONOMIES SUFFER FROM PROBLEM OF DISEASE OF STAGFLATION WHICH MEANS THE COEXISTENCE OF INFLATION AND UNEMPLOYMENT IN A STAGNANT ECONOMY.
6. THE EXCHANGE RATE AND THE BALANCE OF PAYMENT: THE BALANCE PAYMENT IS A SYSTEMATIC RECORD OF ALL ECONOMIC TRANSACTION BETWEEN MEMBERS OF THE HOME COUNTRY AND THE REST OF THE WORLD IN THE ACCOUNTING YEAR AND ALSO INFLUENCED BY EXCHANGE RATE.
7. BUDGETARY DEFICIT AND FISCAL POLICY: BUDGETARY EXPENDITURE IS RISING DUE TO WELFARE ACTIVITY. MOST OF THE COUNTRIES LIKE INDIA RELY ON BORROWING AS MAJOR PART SOURCE OF FUNDING. FISCAL DEFICIT IS ALSO INCREASING
8. MANAGEMENT OF MONEY SUPPLY AND INTEREST RATES ARE THE CRUCIAL ISSUES.