Economics · Chapter 6
Study notes aligned to the official NEB syllabus.
The term macroeconomics is derived from the Greek word Makros, which means large or big. Thus, macroeconomics concerns the study of the economy as a whole. It studies aggregate variables such as national income and output, level of employment, total saving and investment, general price level and so on. It studies not individual units but all the units combined together. Since macroeconomics deals with the economy in aggregate, it is also called aggregate economics.
According to K.E. Boulding, "Macroeconomics deals not with individual quantities but with aggregates of those quantities, not with individual incomes but with national income, not with individual prices but with the price level, not with individual output but with national output." Macroeconomics explains how the level of income and output is determined and analyzes what brings fluctuation in income and employment. Therefore, it is also called the "theory of income and employment." It also deals with the problems of trade cycles, inflation, unemployment and so on.
Macroeconomic variables are indicators of the overall state of a country's economy. They indicate the current status of a state depending on a particular area of the economy such as industry, trade, agriculture, tourism and so on. Some macroeconomic variables are the following.
It is the most representative macroeconomic variable of a country. It indicates the real economic situation of an economy. A higher economic growth rate in the economy represents a strong economic condition of the nation and vice versa. It is calculated from the difference in GDP of a nation. Its formula is:
$$\text{Economic growth rate} = \frac{GDP_t - GDP_{t-1}}{GDP_{t-1}} \times 100%$$
Where,
GDP is the total money value of all final goods and services produced within the geographical boundary of a country during a fiscal year. It is calculated by multiplying the final goods and services by market price. An increase in the value of GDP implies an increase in the production of goods and services in the country and vice versa. It is measured by the following formula:
$$GDP = P_1 Q_1 + P_2 Q_2 + \cdots + P_n Q_n$$
Where,
Inflation is a persistent increase in the general price level for goods and services in a country, and it is measured as an annual percentage change in price level. Inflation decreases the purchasing power of money and the living standard of people and increases the gap between rich and poor. The rate of inflation is calculated by the consumer price index. Due to high aggregate demand and low aggregate supply, inflation occurs.
The term macroeconomics is derived from the Greek word Makros, which means large or big. Thus, macroeconomics concerns the study of the economy as a whole. It studies aggregate variables such as national income and output, level of employment, total saving and investment, general price level and so on. It studies not individual units but all the units combined together. Since macroeconomics deals with the economy in aggregate, it is also called aggregate economics.
According to K.E. Boulding, "Macroeconomics deals not with individual quantities but with aggregates of those quantities, not with individual incomes but with national income, not with individual prices but with the price level, not with individual output but with national output." Macroeconomics explains how the level of income and output is determined and analyzes what brings fluctuation in income and employment. Therefore, it is also called the "theory of income and employment." It also deals with the problems of trade cycles, inflation, unemployment and so on.
Macroeconomic variables are indicators of the overall state of a country's economy. They indicate the current status of a state depending on a particular area of the economy such as industry, trade, agriculture, tourism and so on. Some macroeconomic variables are the following.
It is the most representative macroeconomic variable of a country. It indicates the real economic situation of an economy. A higher economic growth rate in the economy represents a strong economic condition of the nation and vice versa. It is calculated from the difference in GDP of a nation. Its formula is:
Where,
GDP is the total money value of all final goods and services produced within the geographical boundary of a country during a fiscal year. It is calculated by multiplying the final goods and services by market price. An increase in the value of GDP implies an increase in the production of goods and services in the country and vice versa. It is measured by the following formula:
Where,
Inflation is a persistent increase in the general price level for goods and services in a country, and it is measured as an annual percentage change in price level. Inflation decreases the purchasing power of money and the living standard of people and increases the gap between rich and poor. The rate of inflation is calculated by the consumer price index. Due to high aggregate demand and low aggregate supply, inflation occurs.