Macroeconomic Principles

6 Key excerpts on "Macroeconomic Principles"

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  eBook - ePub

  Organisations and the Business Environment

  • Tom Craig, David Campbell(Authors)
  • 2012(Publication Date)
  • Routledge

    (Publisher)

  It examines the national and international aspects of economics and how national economic policies affect individual households, consumers and businesses. Macro-economics is also concerned with the ways in which the state manages the economy by using the range of economic ‘levers’ or ‘weapons’ at its disposal (Figure 9.1). Figure 9.1 Different branches of economics. Micro- and macro-economics – an imperfect metaphor If you look at a picture from a great painter, you can appreciate it on two levels. From a distance you can enjoy the totality of the painting, its spatial arrangements, the configurations of the figures, the blends of light and shade, the colours, and so on. If you then approach the painting and examine it in detail, possibly with a magnifying glass, you can analyse the intricate individual brush strokes, the textures and the individual colour amalgams. Whilst we mainly see the big picture, we can readily appreciate this would not exist without the intricate, painstaking work invested in each stroke. The quality of the painting comprises both levels of appreciation. We can view macro-economics as our view of the total painting and micro-economics as our examination of the intricate strokes and textures. Macro-economics concerns the effects of thousands or even millions of individual micro-economic decisions. The Macro-Economic ‘Environment' Given that macro-economics concerns the ‘big picture’ of economics, it is reasonable to ask what the components of the macro-economic environment are inasmuch as they can affect business (which, after all, is the subject of this book). The macro-economic environment includes such national and international concerns as: levels of tax levied by the government; levels of public expenditure (i.e. spending by the state); the price of borrowing money (i.e

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  Macroeconomics in Context

  A European Perspective

  • Sebastian Dullien, Neva Goodwin, Jonathan M. Harris, Julie A. Nelson, Brian Roach, Mariano Torras(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  People generally agree that high unemployment, persistent high inflation, and destruction of the natural environment, for example, are bad things, yet they occur nonetheless. macroeconomy: an economic system whose boundaries are normally understood to be the boundaries of a nation or an area, such as the euro area, when it is operating, in economic terms, like a nation. Microeconomics and macroeconomics are terms that are applied rather loosely, covering or emphasizing different topics as times and circumstances change. Many issues have both macroeconomic and microeconomic aspects. For example, the increase of the value-added tax will affect microeconomic behavior—people may consume less or shift their patterns of consumption toward untaxed items—but it also affects government revenues, which, as we will see, are an important element of macroeconomic analysis. No one speaks of “the microeconomy” because there are too many subnational economic systems of varied sizes that are studied in the field of microeconomics. However, the term macroeconomy is used to refer to a national economic system or to the economy of the euro area (which resembles in many ways a national economy even if it is not quite one—see Chapter 17). global economy: the system of economic rules, norms, and interactions by which economic actors and actions in different parts of the world are connected to one another People also speak of the global economy, meaning the system of economic rules, norms, and interactions by which economic actors and actions in different parts of the world are connected to one another. Economic actors (or economic agents) include all individuals, groups, and organizations that engage in or influence economic activity. As the global economy has become an increasingly important part of the experience of more and more people, it has become more essential to include its study in introductory macroeconomics courses

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  eBook - ePub

  Learning Basic Macroeconomics

  • Hal W. Snarr(Author)
  • 2014(Publication Date)
  • Business Expert Press

    (Publisher)

  CHAPTER 2 Foundations of Macroeconomics

  Macroeconomics analyzes how policy changes and economic shocks affect the economy as a whole. Because it is grounded in microeconomics, which studies issues that individuals and firms are concerned with, this chapter begins with an introduction to basic microeconomic principles. The production possibilities frontier (PPF) is used in the subsequent section to introduce macroeconomics, and to acquaint readers with concepts like GDP, potential output, unemployment, and the natural rate of unemployment. Since macroeconomic performance is assessed using these and other macrovariables, they are covered in great depth in the final section of this chapter.

  Basic Microeconomic Principles

  Microeconomics studies the behavior of individuals and firms. Firms seek maximum profits and individuals seek maximum satisfaction, or utility, but both are faced with constraints and scarce resources. For example, a cheese maker cannot sell its cheddar for any price it wants even if it is a monopolist, the only seller of a product. Likewise, it cannot buy milk from dairy farmers at any price it wants even if it is a monopsonist, the only buyer of a product.

  Demand

  The demand curve, or demand, is the force that prevents a firm from charging any price it wants. This is so because a product’s demand represents the maximum price consumers are willing to pay for a given level of scarcity. The amount of a good or service that is purchased by a consumer at a given price is referred to as quantity demanded, which corresponds to a single point on demand. Thus, demand refers to a curve, and quantity demanded corresponds to a point on that curve.

  The Law of Demand states that, all else being equal, the quantity demanded for a product declines as its price rises. The law is tested in a hypothetical experiment that asks people working near Main and Elm the question: With tacos selling at $1.25, how many hot dogs will you buy per week at a price of $6.50, or at $0.50? Table 2.1 shows hypothetical data from 875 respondents. The middle column indicates that respondents collectively demand 1,000 hot dogs when the price is $6.50. The point that corresponds to these values is labeled point A in Figure 2.1 . In the right column of the table, survey participants collectively demand 7,000 hot dogs when the price drops to $0.50. These values correspond to point B in Figure 2.1 . The line that connects the two points represents hot dog demand. It gives the expected quantity of hot dogs demanded for a given price. The movement along demand

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  The Portable MBA

  • Kenneth M. Eades, Timothy M. Laseter, Ian Skurnik, Peter L. Rodriguez, Lynn A. Isabella, Paul J. Simko(Authors)
  • 2010(Publication Date)
  • Wiley

    (Publisher)

  The Wealth of Nations, published in 1776. Resource allocation is determined in a market system by reactions to and changes in prices. While the mechanics are rather simple, the implications for society and the belief that firms and markets are valuable social institutions rest in large part on the ideas embodied in supply and demand analysis.

  Exhibit 2.3

  A Shift in Supply

  It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self interest…. [Every individual] intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his original intention. By pursuing his own interest, he frequently promotes that of society more effectually than when he really intends to promote it.

  —Adam Smith

  Macroeconomics

  Whereas microeconomics focuses on individual and firm-level decisions, macroeconomics focuses on the broad state of the economy. When people ask, “What’s the economy doing?” or “What’s the state of the stock market?” they are asking about the macroeconomy. Macroeconomics employs tools and concepts that help us to think about and predict the level of unemployment, the rate of inflation, rates of economic growth, the level of interest rates, and the policies governments pursue to influence them. Because ultimately the impact of policies depends on the behavior of individuals and firms, macroeconomics does not ignore microeconomic analysis. Models of macroeconomic behavior are rooted in ideas and evidence of how individuals react to changes in their environment. Macroeconomic models range from the simple to the incredibly complex, and all embody some key relationships that we discuss in the remainder of this chapter.

  To begin with, we can represent what goes on in the economy with a supply and demand graph very similar to those used in the microeconomics section. Exhibit 2.4 is such a graph. Notice that we have appended an A to the D and S to note that we are now dealing with aggregate demand (AD) and aggregate supply (AS). By aggregate, we mean the value of all of the goods and services produced in the economy during a period of time. The more common phrase for this value is the gross domestic product (GDP) of the economy. Since the AD

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  Methodological Dimension of Islamic Economics

  • Masudul Alam Choudhury(Author)
  • 2019(Publication Date)
  • WSPC

    (Publisher)

  Chapter 8

  Macroeconomic Theory in Mainstream and Tawhidi Islamic Economic (TIE) Perspectives

  Nature of macroeconomic analysis

  At the first insight of understanding, the field of macroeconomics is seen as the study of the increasing stabilization in the coterminous relationship between price, output, money, and employment for the economic system that is seen to remain in perpetual disequilibrium, little or more. Consequently, the functioning of an economy, in other words, the inquiry as to how the economy works, is rendered to the empirical visage of interactive functioning of the critical variables at the economy-wide level. In such a case, aggregation is necessary. Yet, it is the intricacies faced in the problem of aggregation that pose one of the outstanding irresolutions of the question on how the economy works.

  But the nature of macroeconomics as an interactive system study of aggregate economic variables taken in terms of mathematical modeling, invokes a deeply epistemological issue (Lawson and Pesaran, 1989). Keynesian project in this project was centered on the issue of harmonizing certain human behavior within the representation of the emergent models, such as marginal propensity to consume and marginal propensity to save. That is how the epistemological outlook of economic rationality was induced by the Keynesian macroeconomic approach to the harmonization of human behavioral. This was a nicety of reasoning, not the critical realist nature of reasoning, for Keynes’ Treatise on Probability (O’Donnell, 1989) was unable to fathom a way out of the legion of subjective probabilities in which economic problems and human behavior remain immersed. Consequently, to resolve this problem, Keynes had to take recourse to the simplifying assumptions of economic rationality. That is, he reduced human behavior into one unique and uniform standard based on economic rationality.

  Thus, in the core of his reasoning, Keynes was a thoroughbred neoclassical economic thinker. The difference between the neoclassical economic school and the Keynesian school was essentially in the nature and at the level of aggregate analysis in the latter. Yet, by the formalism of independence of the macroeconomic aggregation from any trace of its microeconomic premises, Keynesian aggregation, and thereby macroeconomics remained a field of study totally different and independent of microeconomic theory. In recent times, despite the emergent theory of microeconomic foundations of macroeconomics (Phelps, 1970), such efforts have remained explorations in rational expectations and social choice theory and public choice theory (Lucas, 1975; Arrow, 1951), all of which are aspects of neoclassical economic theory. Hence, the entire field of economics, comprising microeconomics, macroeconomics, and microeconomic foundations of macroeconomics, is found to be premised on the epistemology of the economic behavioral axiom of rationality.

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  Islamic Economics

  Theory and Practice

  • Abul Hassan, M.A. Choudhury(Authors)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  9 MACROECONOMIC THEORY IN MAINSTREAM AND ISLAMIC ECONOMIC PERSPECTIVES

  Learning objectives

  This chapter intends to give a comparative overview of macroeconomics in the mainstream context and then shows how Islamic ethical norms can be incorporated in Islamic macroeconomic models, so that students may:

  • learn something about the implications of the norms of Islamic injunctions if introduced in letter and spirit on the aggregate behaviour of economic agents. For example the introduction of Islamic profit-sharing arrangement in the banking and financial system instead of interest (riba) based transitions will positively affect investment demand

  • realize the Keynesian macroeconomic approach into the harmonization of human behaviour within the representation of the emergent models, such as marginal propensity to consume and marginal propensity to save

  • understand about the general flows of goods and services according to macroeconomics with ethical valuation

  • learn something about government spending as fiscal policy, monetary policy, all other policies, technology and innovation effects while looking at the implication of Islamic ethics in the economy

  • appreciate that both the style of income determination and the nature of its distribution are likely to change in an Islamic economy.

  Nature of macroeconomic analysis

  At first sight, the field of macroeconomics is seen as the study of the increasing stabilization in the coterminous relationship between price, output, money and employment for the economic system that is seen to remain in perpetual disequilibrium, more or less. Consequently, the functioning of an economy – in other words, the inquiry as to how the economy works – is rendered to the empirical visage of interactive functioning of the critical variables at the economy-wide level. In such a case aggregation is necessary. Yet it is the intricacies faced in the problem of aggregation that poses one of the outstanding questions on how the economy works.

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