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Macro Economics: Key Concepts Explained

The document provides an overview of macroeconomics topics including: 1) The key objectives of macroeconomics are higher output, controlling inflation, and reducing unemployment. 2) It defines important macroeconomic concepts and terms such as GDP, GNP, aggregate demand, aggregate supply, inflation, and economic growth. 3) The evolution of money is discussed from barter systems to modern commodity and paper currencies, and components of the money supply are defined including M1, M2, and M3.

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10 views4 pages

Macro Economics: Key Concepts Explained

The document provides an overview of macroeconomics topics including: 1) The key objectives of macroeconomics are higher output, controlling inflation, and reducing unemployment. 2) It defines important macroeconomic concepts and terms such as GDP, GNP, aggregate demand, aggregate supply, inflation, and economic growth. 3) The evolution of money is discussed from barter systems to modern commodity and paper currencies, and components of the money supply are defined including M1, M2, and M3.

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tashfeen
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LECTURE # 03

LECTURE # 01
REVISSION

MACRO ECONMICS OBJECTIVES


 Higher level of output
 To control inflation
 To reduce unemployment

Aggregate demand = Aggregate supply


C+I+G=C+S+T
 C = Consumption
 I = Investment
 G = Government spending
 S = Saving
 T = Tax

GDP : Gross domestic product ( C + I + G + NX)


GNP : Gross National product ( GDP – foreigners’ outflow + national inflow)
AD : Aggregate demand ( Demand of whole economy)
AS : Aggregate supply (Supply of whole economy)
NI : National income
INFLATION : Increase in prices.
DEFLATION: Decrease in prices

ECONOMIC GROWTH
An increase in the amount of goods and services produced per
head of the population over a period of time.
ECONOMIC DEVELOPMENT
 Long term phenomena
 Structural changes that impact economy
 EXAMPLE: Gwadar city, metro bus, motorway.

FATHER OF ECONOMICS: Adam smith


FATHER OF MACRO ECONOMICS: John Keynes

TYPES OF UNEMPLOYMENT
 Voluntary unemployment
 Involuntary unemployment
 Under unemployment

PHILIP CURVE
There is tradeoff between inflation and unemployment.

POLICIES
MONITORY POLICY
 Made by central bank
 Governor
 2 months
 Control money supply in economy
 Variables are interest and money supply

FISCAL POLICY
 Government
 Finance Minister
 One year
 Variables are Tax, government spending’s and development
expenses.
EVOLUTION OF MONEY
THE HISTORY OF MONEY:
1. Barter System:
 Exchange of goods against goods
 Divisibility ratio
 No store of value
 No unit of account specified

2. Commodity Money:
 Money as a medium of exchange first came into human life in the
form of commodity money. A great variety of items have served as
money for one time or another.
 For Example: cattle, olive oil, beer or wine and metals.
 By 19th century the commodity money was exclusively limited to
metals like gold and silver. These forms of money have intrinsic
value, means they had used value in themselves.
 Because money had intrinsic value. There was no need for the
government to guarantee it value and the quantity of money regulated
by market for the demand and supply of gold and silver.

3. Modern Money :
 The age of commodity money provided way to the age of paper
money. The intrinsic value of money is now the least important thing
about it. Money is demanded not for its own sake but for the things it
will buy.
 Paper money
 Electronic money
 Virtual money or crypto currency
COMPONENTS OF MONEY SUPPLY

1) TRANSACTIONS MONEY ( M1)


 Many years back paper money was granted by gold or solver but no
such practice now a days. Presently coin and paper currency are
called faith money.
 Faith money is something determined to be money by the
governments.
 Currency and coins are the legal tenders which must be accepted by
all stake holders for all debts either private or public.
 Coin and paper currency both of known as currency adds up to one
third of total transaction money.
 M1 = currency circulation (CC) + Demand deposit (DD)
 Current accounts are called demand deposits ( Interest free)

2) BROAD MONEY (M2)


 M2 = currency circulation (CC) + Demand deposit (DD) + Saving
deposit (SD)
 M2 = M1 + SD

3) BROAD MONEY (M3)


 M3 = currency circulation (CC) + Demand deposit (DD) + Saving
deposit (SD) + Fixed deposit
 M3 = M2 + TD

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