Concepts of macroeconomics
Economics is comprised of many specializations; however, the two broad sub-groupings for economics are microeconomics and macroeconomics. However, when the speed of adjustment is slow, we need dynamic- analysis to get a complete picture of the movement from one equilibrium to another.
Inflation and Deflation The study of inflation and deflation is another important aspect of macroeconomics. Similarly, equilibrium price is determined by the equality of ex-ante demand and ex-ante supply and so on.
In classical theory, prices and wages would drop until the market cleared, and all goods and labor were sold. For example, the central bank of a country can pump money into an economy by issuing money to buy bonds and other assets.
The unemployment rate is the statistic that measures the percentage of those people who want to work but could not find any job.
The case of increasing opportunity cost is represented in Fig. When demand for goods exceeds supply there is an inflationary gap where demand-pull inflation occurs and the AD curve shifts upward to a higher price level. To simplify analysis each model makes some assumptions which must be explicitly stated when a model is formulated. Given the enormous scale of government budgets and the impact of economic policy on consumers and businesses, macroeconomics clearly concerns itself with significant issues. Learning Objectives Explain the connection between a recession and other macroeconomic variables Key Takeaways Key Points Macroeconomic indicators such as GDP Gross Domestic Product , employment, investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. For example, if savings of the economy during a period of time depends on the level of income of that period, then this represents a static relationship. Expansionary monetary policy relies on the central bank increasing availability of loanable funds through three mechanisms: open market operations, discount rate, and the reserve ratio. It is measured at a given point in time. But the total supply of money is a stock concept which is measured on a particular point in time. This assumption is called market clearing. When the economy faces higher costs, cost-push inflation occurs and the AS curve shifts upward to higher price levels. Key Takeaways Key Points Aggregate demand is downward sloping as a result of three consumption sensitivities: wealth effect, interest rate effect and foreign exchange effect. But it is true for certain values of x and y only.
Ex-ante values arc relevant for determining equilibrium values of different variables. When the production possibility frontier is drawn as a straight line, the opportunity cost and the marginal rate of transformation remain unchanged no matter how much cloth is produced.
A peak is realized when the economy is producing at its maximum allowable output, employment is at or above full employment, and inflationary pressures on prices are evident. In static analysis there are several parameters which are assumed to be constant at a particular level.
New Keynesian models investigated sources of sticky prices and wages due to imperfect competition which would not adjust, allowing monetary policy to impact quantities instead of prices.
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