1. CHAPTER 1 INTRODUCTION TO MACROECONOMIC
PB202 MACROECONOMICS
CHAPTER 1
INTRODUCTION TO MACROECONOMIC
Prepared by: Azlina bt Azmi
Session of December 2010

2. Chapter objectives Learn macroeconomic in general
To evaluate government policies and tools
To know the Aggregate Demand and Aggregate Supply

3. Arrow Process Chapter Sneak Peak
Why use graphics from PowerPointing.com?
- Definition
-AD curve
- AS curve
Factors that shift AD curve
Factors shift AS curve
- What is macroeconomics?
Macroeconomics versus microeconomics
- Macroeconomic goal
EFFECT ON UNEQUAL EQUILIBRIUM OF AD & AS
AGGREGATE DEMAND & AGGREGATE SUPPLY
GOVERNMENT POLICIES AND TOOLS
MACROECONOMICS IN GENERAL
SUMMARY
Fiscal policy Monetary Policy
- How does it affects price level and real GDP?
Prepared by: Azlina bt Azmi
Session of December 2010
This illustration is a part of ”Building Plan”. See the whole presentation at slideshop.com/value-chain

4. What is macroeconomics?
The branch of economics that studies decision making for the economy as a whole (inflation, unemployment, economic growth, money supply, national incomes, business cycle)

5. Macroeconomics vs Microeconomics
Studies individual income
Studies national income
Analyzes demand for and supply of labor
Analyzes total employment in the economy
Deals with households’ and firms’ decisions
Deals with aggregate decisions
Analyzes demand and supply of goods
Analyzes aggregate demand and aggregate supply

6. Macroeconomic Goal Price stability Economic growth Full employment
Distribution of income

7. Inflation

8. Inflation
An increase in the overall average price level of goods and services in the economy
How do we know when it is inflation?
By computing price level using CPI index
Key measurement: Consumer Price Index (CPI)
Types of inflation:
Cost Pull Inflation
Demand Pull Inflation
Imported Inflation

9. Unemployment
The growth of economy and unemployment are always “catching our eyes”
Why?
Affect our future
GDP rises (economic in boom), full of jobs
GDP falls, firms facing a bankruptcy and more workers lost their job

10. Business cycles
Alternating periods of economic growth and contraction, which can be measured by changes in real GDP (Tucker. I.B, 2008)
As a mirror of changes in unemployment and other key measures of macro economy
4 phases:
Peak
Recession
Trough
Recovery

11. Government Policies
In order to stimulate economic growth, price level and aggregate demand (AD)
To combat recession and inflation
Two types:
Fiscal Policy (tax and government spending)
Monetary Policy (money supply)

12. Fiscal Policy
The use of government spending and taxes to influence the nation’s spending, employment and price level
Falls in to two types:
Expansionary Fiscal Policy
Contractionary Fiscal Policy

13. Expansionary Fiscal Policy
In order to combat recession
To increase aggregate demand
Reduce tax, increase government spending or equally

14. Contractionary Fiscal Policy
To combat inflation
To increase aggregate demand
Increase tax, reduce government spending

15. Monetary Policy
The government tool to control level of money supply in the economy
Changes in money supply can led changes in interest rate
How Federal Reserve’s power to change money supply can also alter the interest rate
Two types:
Expansionary Monetary Policy
Contractionary Monetary Policy

16. Expansionary Monetary Policy
To combat recession
Increasing money supply leads interest rate to fall
How?
Funds will be injected into the banking system to reduce interest rates
Spending and borrowing would increase
Resulting increase in consumption and investment to stimulate economic growth

17. Contractionary Monetary Policy
To combat inflation
Decreasing money supply leads an increase in interest rate
How?
Withdrawing funds from the banking system and raising interest rates
The higher interest rates will encourage people to save more and spend less
More expensive for people to borrow money

18. GDP growth and public expenditure share to GDP (%)

19. Aggregate Demand