MACRO-ECONOMICS Presenter: Kirkland Anderson Associate Professor of Economics & Management

INTRODUCTION TO MACRO-ECONOMICS UNIT ONE INTRODUCTION TO MACRO-ECONOMICS

WHAT IS ECONOMICS? Economics is the social science that studies the production, distribution, and consumption of goods and services The term economics means "management of a household. Economics aims to explain how economies work and how economic agents interact.

ECONOMIC AGENTS GOVERNMENT {CENTRAL & LOCAL} GOVERNMENT AGENCIES CORPORATIONS HOUSEHOLDS

WHAT IS ECONOMICS? Economics is about the decision-making through which man allocates and utilizes his limited resources in order to maximize satisfaction, given that his wants are unlimited.

CATEGORIES OF ECONOMICS MICRO-ECONOMICS MACRO-ECONOMICS

Macroeconomics ("big" economics) which addresses issues of unemployment, inflation, monetary and fiscal policy for an entire economy. Microeconomics ("small" economics), which examines the economic behavior of agents (including individuals and firms).

MACRO-ECONOMICS the study of the economy as a whole, and the variables that control the macro-economy. the study of government policy {monetary & fiscal policy & supply side economics} meant to control and stabilize the economy over time, that is, to reduce fluctuations in the economy.

IS MACROECONOMICS THE SAME FOR ALL COUNTRIES? the major variables describing the macro-economy are the same. the three major policy approaches are the same but the quality to which these policies are applied differ from one country to another; this because the political process from which these policies emerge are unique to each country.

THREE MAIN DIFFERENCES SEPARATE MICRO & MACROECONOMICS First, microeconomics studies individual components, whereas macroeconomics studies the economy as a whole. microeconomics treats the economy as so many separate components, whereas macroeconomics treats the components of the economy as one unit, as one aggregate, that is looks for relationships between the various components.

Second, controversy aside, government involvement in microeconomics is relatively small, and relegated to public goods, regulation, and welfare. But, controversy notwithstanding, government involvement in macroeconomics is rather substantial, nearly total; it is only government that makes and enforces monetary and fiscal policy.

Third, whereas microeconomics has been around since the mid eighteenth century, macroeconomics began only as a reaction to the Great Depression of the 1930s.

ORIGIN OF MACROECONOMICS John Maynard Keynes, an English economist, hence macroeconomics is also referred to as Keynesianism. Keynes argued that by itself the market is unable to generate enough savings (capital) to sustain investment at full employment levels; and that this could be achieved only with the periodic sharp increase in government spending.

WHAT THIS COURSE IS ABOUT This course places emphasis on macro-economics variables {issues}, such as: economic growth money money creation interest rate inflation

exchange rate unemployment / employment international trade balance of payment, national debt, which are critical to having an understanding of the workings of the macro-economy.

ECONOMIC THEORIES Classical Marxism Neoclassical economics Keynesian Chicago Other schools YOU ARE TO READ UP ON THESE ECONOMIC THEORIES FOR CLASS DISCUSSION.

MACRO-ECONOMIC GOALS ALL THE MACRO-ECONOMIC ACTIVITIES ARE GEARED TO ACHIEVE THE FOLLOWING GOALS: HIGH EMPLOYMENT / LOW UNEMPLOYMENT STABLE OR LOW INFLATION ECONOMIC GROWTH / ECONOMIC DEVELOPMENT STABLE EXCHANGE RATE BOP EQUILIBRIUM

MACRO-ECONOMIC PROBLEMS Macro-economic goals if not properly managed can become macro-economic problems.

ECONOMIC PROBLEMS Inflation Unemployment slow growth balance of payments problems fluctuating exchange rate

Goal conflict may also give rise to macro-economic problems.

WORKSHEET QUESTIONS DISCUSS WHY JAMAICA LAG SO MUCH IN ECONOMIC GROWTH BEHIND THE OTHER ISLANDS IN THE CARIBBEAN. WHY IS THE CONTROL OF INFLATION GIVEN SUCH A HIGH PRIORITY IN MACROECONOMIC POLICY-MAKING?