INTRODUCTION TO MACROECONOMICS
Economics' two -major branches are:
Microeconomics: discusses individual economic units: the firm, the consumer, particular markets, such
as the oil market, the computers mkt, the tomatoes mkt.
Macroeconomics: discusses the behavior of aggregate economic Variables, such as total investment,
total consumption, govt. expenditures and taxation, unemployment, inflation, economic growth….. etc.
The two branches are related, i.e. macro events affect micro areas & vice versa.
Macro issues: What does macroeconomics discusses?
I) Long term economic Growth:
1) What causes economic growth?
2) How do govt. policies affect economic growth? Through:
a) Monetary policy, which regulates money supply and interest rates.
b) Fiscal policy, which regulates government expenditures and taxation.
II) Short term business cycles: are short term fluctuations in economic activity. To understand
business cycles we must understand inflation and unemployment.
* Economic indicators: are measures of the health of the economy, such as the rate of econ. growth,
unemployment, the budget deficit., the public ( govt.) debt, the inflation rate, investment , the balance of
* National product and national income: as NP rises, NI rises too.
* This means that the more goods and services are produced, there is more income generated for people.
This is because in the process of generating output , factors of production must be employed and paid
The value of NP = the sum of incomes to
the owners of the factors of production.