MACROECONOMICS
Introduction
to Macro Economics, it is essential that
you, yourself develop an understanding of what Macroeconomics is and how it is
different from Microeconomics. You must have noticed that these terms are
invariably used by all; but as Economics Teacher you must have a deeper insight
about what these terms connote and make students understand in simpler words
how Macroeconomics is different from Microeconomics and also how both are
important for understanding Individual Behaviour and Aggregated Indicators i.e.
GDP, Unemployment Rate, Price Indices
etc. Macroeconomics Microeconomics is derived from Greek Prefix
"macr(o)" meaning "large" + economics) is a branch of
economics dealing with the performance, structure, behavior, and decision
making of the entire economy. This includes a national, regional, or global
economy. Microeconomics and Macroeconomics are two most general fields in
Economics.
What is the difference between Microeconomics and Macroeconomics?
Microeconomics
is primarily focused on the Individual Agents i.e. Firms and Consumers and how
their behaviors determine Price and Quantities in specific markets.
Macroeconomics
is a broad field of study. It studies Aggregated Indicators such as GDP,
Unemployment Rates, and Price Indices to understand how the whole economy
functions. Macroeconomists develop models that explain relationship between
factors such as National Income, Output, Consumption, Unemployment, Inflation,
Saving, Investment, International Trade and International Finance.
Macroeconomics
models and their forecasts are used by both Governments and large corporations
to assist in the development and evaluation of economic policy and business
strategies.
Fiscal Policy
and Monetary Policies are good examples of how economic management is achieved
through these government strategies.
It is also
vital to point out here that to avoid major Economic Shocks, such as Great
Depression, Recession, Melt down etc., Government makes adjustments through
policy changes, they hope, will stabilize the economy.
Same Basic Concepts
Computation
of National Income is important as it reflects the leveled growth &
development of any country. But before you introduce children with the concept,
meaning and definition of National Income/GDP and other related terms,
introduce and explain the basic concepts/terms which will invariably be used in
the computation of National Income. These concepts are explained briefly as
under:
Consumption Goods
Consumption
refers to the act or a process to consume which means using up of goods and
services by consumers for satisfaction of their wants. Consumption good or service is that which is
used (without further transformation in production) by Households or Government
units for the direct satisfaction of individual needs or wants or the
collective needs of members of community.
It can also be defined as any commodities that are used by the household
for their personal use. Consumer goods
are final goods specifically intended for mass market. These goods do not
include investment, for example Bread, butter, milk, tea, coffee, etc. which
are directly used by consumers for satisfaction of their needs. These are
example of One Time Consumption goods (also known as single use consumer goods)
but there can be examples like machine, furniture, readymade clothes which are
repeatedly used but they are used directly and hence fall in the category of
Durable Consumption Goods. Hence consumer goods are the end result of the
production.
Capital Goods
Goods
that are used in producing other goods, rather than being bought by consumers
directly for satisfaction of their needs are called Capital Goods. These are
tangible Explain to students that final goods may be divided in to two
categories i.e. Consumer goods &
Producers goods. Assets of an organization which are used to produce goods and
services are called Capital goods. These goods include items such as Buildings,
Equipments, and Machinery etc. Capital goods are not used up by producer in a
single year of production. These exist for many years and are repeatedly used
over a period of time. Capital goods may
undergo capital improvement which typically extend their life and increases
their productivity. These are also known
as producer's goods as they are being used to create other goods.
Final Goods
Final goods are goods that are ultimately
consumed rather than used in the production of other goods. It refers to
finished goods which are sold in the market for consumption & investment
purpose. These goods satisfy the wants of ultimate producers or consumers or
both. Buying of furniture by a household consumer for his house is final good
for him whereas the same when bought by a producer for his office is producer’s
final goods. Another example can be flour used by the household are final good
whereas the same flour used by the baker is a producer's goods.
Intermediate Goods
All
those goods which are used by the producers for producing other goods are known
as Intermediate goods.
These
goods are used as inputs in the production of other goods such as partially
finished goods. These goods are demanded for producing other goods. Thus
intermediate goods are those goods which are sold by one industry to another
either for resale or for producing other goods. Stocks of Raw Materials and
Semi finished goods fall under the category of intermediate goods. Another
example can be of raw cotton used for the production of yarn is an Intermediate
good and when the same yarn is sold to the owner of the textile mill for the
production of cloth then the same yarn becomes intermediate good for the owner.
Stocks & Flows
Stocks & Flows have natural meaning in
many contexts outside of business and its related fields. Let us define/give
meaning to both the terms 'Stock' & 'Flow' and then show the relatedness of
the two and how these are impacting on an economy/business.
Stock
A 'Stock' refers to the value of goods &
services at a particular point of time. It is an entity that is accumulated
over by inflows and/or depleted by outflows. Therefore, we can say that the
'stock' can only be changed by a 'flow'.
'Stocks' typically have a certain value of
each moment of time, for example the size of population at a certain moment.
i.e.
As
per census 2001, the population of India stood at 102 billion, whereas
according to 1991 census the population of India 'stood at 84.6 billion. The
change/Increase in the figure at two census i.e. 1991 & 2001 is because of
the additional population (flow) in 10 years.
Flow
It
is change in stock over period of time. Change refers to inflows (adding to the
stock) and outflows (subtracting from the stock). Flows typically are measured
over a certain interval of time. For example the increase in population census
1991 to census 2001 is due to increase in number of births in a period of 10
Years. To conclude we may say that 'Stock' is a Static concept whereas 'Flows'
represents Dynamic concept.
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