Part : B Macroeconomics
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Unit - 7
The total subject matter of economics is divided into two groups/ parts: Microeconomics and Macroeconomics. Macroeconomics is the part of the economics in which the economic activities are studied as a whole. In this economics we discuss about national income, employment, Investment, General Price Level etc. This concept was developed by modern economist J.M Keynes in 1935 A.D. by publishing his famous book “The General Theory of Income & Employment”. So, macroeconomics is also known as Keynesian economics.
The following points are included in macroeconomics.
1. The word ‘macro’ is derives from the Greek word ‘makros’ which means large.2. Macroeconomics is aggregate (whole) study of economy.
3. It is also called Income and Employment theory.
4. Macro concept is developed after the publication of Keynesian book “The General Theory of Income & Employment” in 1936 A.D.
5. In macroeconomics many economics variables like: - National Income, Total consumption, Total Expenditure, Total saving of investment are studied in macroeconomics.
Closed and Opened Economy
The economy of the world is divided into two parts on the basis of the relationship of international trade:
1. Closed Economy
2. Opened Economy
1. Closed Economy
Closed economy is that economy which has no any relationship to other country of the world. In this economy all the economic activities are perform by household sector, business sector & government sector.
According to N.G. Mankiw “closed economy is an economy that does not interact with other economies of the world”.
The following are features of closed economy:
1. It has no relationship with other economies of the world.
2. There is no imports and exports of goods and services.
3. It does not take loan form other country and does not provide loan to other county also.
4. There are household, business and government sectors in the economy.
5. GDP and GNP both are equal in this economy due to the absence of international trade (GDP = C+I+G).
2. Opened Economy
The economy which has international relationship to other countries of the world is called opened economy. In this economy household, business, government & international trade sector are involved. So GDP = C+I+G+(x-m).The following are the features of opening economy.
1. There are four sectors in the economy which are house hold, business, government, & foreign sector.
2. There is minimum government intervention and no restriction on imports and exports.
3. There is perfect competition in both internal and external market.
4. It takes and provide loan and aid to other countries.
5. Household sector exports only labour and capital, business sector exports and imports only goods and services.
Differences between closed and opened economy
Closed Economy
|
Opened Economy
|
1. It has no
economic relationship with other countries of the world.
|
1. It has
economic relationship to other countries if the world.
|
2. There is
no imports and exports of the goods and services.
|
2. There is
imports and exports of the goods and services.
|
3. It does
not take and provide loan to other countries.
|
3. It takes
and provide loans to other countries.
|
4. There is
no perfection mobilization of the workers to other countries.
|
There is
perfect mobilization of workers to other countries.
|
5. It cannot
take remittance from other countries.
|
5. It can
takes remittance from other countries.
|
6. GDP and
GNP both are equal in this economy.
|
6. GDP and
GNP are not equal in this economy.
|
7. It is
only hypothetical concept.
|
7. It is
real concept.
|
Macroeconomics Variables
1. Aggregate Demand (AD) and Aggregate Supply(AS)2. Gross Domestic Product (GDP)
3. Per Capita Income (PCI)
4. Economic Growth Rate (EGR)
5. Rate of Employment & Unemployment
6. Inflation and Deflation
7. Balance of Trade (BOT) and Balance of Payment (BOP)
8. Trade Cycle/Business Cycle
9. Demand and Supply of Money
10. Consumption, Saving and Investment
11. Government Budget
