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CHAPTER 2: INTRO TO MACROECONOMICS - Coggle Diagram
CHAPTER 2: INTRO TO
MACROECONOMICS
Definition
The study of aggregate behavior of the entire economy that includes gross domestic product (GDP), the national income (NI), inflation, deflation, unemployment, public finance, the trade cycle, international trades and others.
Difference Between Microeconomic
& Macroeconomics
Microeconomics
Studies individual income
Analyses demand for supply of labour
Deals with household's and firm's decisions
Studies individual prices
Analyses demand and supply of goods
Macroeconomics
Studies national income
Analyses total employment in the company
Deals with aggregate decisions
Studies overall price level
Analyses aggregate demand and aggregate supply
Macroeconomic Goal
Full employment
The more fully resources are employed, the greater the levels of output of goods and services and the higher standard of living.
High unemployment causes poor quality. People become dissatisfied with the government and this will lead to political upheaval. Standard of living worsens.
Unemployment in the economy means that existing factors of production are not used to produce goods and services, resulting ultimate inefficiency and wastage to the country.
Price stability
A situation of no inflation in the economy.
Inflation is a macroeconomics situation characterized by sustained and continuous increases in the overall level of average of all prices
Inflation can reduce the purchasing power of consumers
It is a process in which money steadily losses value and able to buy fewer and fewer goods and services. Thus standard of living reduces.
Economic growth
Refers to an increase in the full production output level of a nation over time.
A growing economy means that there will be more goods and services for the people to consume.
Economic growth can only be realized over the years. There are four phases of economic cycle:
:check: peak
:check: recession
:check: trough
:check: recovery
Macroeconomic Goals
Equilibrium in foreign sector
Every year Malaysian firms and individuals undertake massive business and financial transactions with firms and individuals in other countries.
A country will try to get an overall surplus balance of payment (more money coming in than money coming out). A country that have high deficit, have to borrow from abroad or attract deposits from abroad. This results in paying high interest rates and increasing country's debt
Equitable distribution of income
To narrow down the gap between higher income and lower income groups to ensure all people are equal in terms of standard of living.
Methods to change the size distribution of income are:
:check: Tax policy
:check: Subsidies