Macro Economics is the branch of Economics that deals with the
performance and behaviour of an economy as a whole. The concepts related
with macro economics are as follows:
Inflation
Generally, inflation is associated with high prices
causing a dip in the purchasing capacity or the value of money. The substantial
and rapid increase in the general price level is termed as inflation. Mainly,
inflation is known to be a monetary phenomenon. Owing to the excess supply of
money and lower production of exchangeable goods, price rise keeps on soaring.
According to Keynesian concept of inflation, the actual inflation starts when
the output remains unresponsive to changes in money supply or when the
elasticity of supply of output in response to increase in money supply falls to
zero.
Business cycle
The fluctuations in economic activity occurring in
more or less regular time sequence in all the capitalist societies are mainly
included in the phenomenon of business cycle. There exist a lot of indicators
that indicate the volume of economic activity in a community. Few of them are-
the volume of employment, price level, output and income. On plotting those
indicators on a chart the resulting graph looks like a wave. It reflects that
economic activity rises and falls in a definite pattern. The business cycle or
a trade cycle consists of the movements of rise and fall taken together.
Employment and
Unemployment
The concept of national income also includes the
determination of employment and unemployment. What is the reason behind level
of national income and employment being very low at the time of depression as
in 1930s in a number of capitalist countries of the world? The answer to this
question will elaborate the cause of vast unemployment that emerged in these
countries. Classical economists disapproved that there could be involuntary
unemployment of labor and other resources for a long time. According to them
unemployment would be there with the changes in wages and prices. But this did
not happen at the time of depression in the thirties and after.
According
to the concept of Keynes it is the aggregate demand and aggregate supply that
determine the level of employment and national income. As a result of aggregate
supply curve being unaltered in the short run, it is the deficiency of
aggregate demand which causes under-employment equilibrium with the emergence
of involuntary unemployment. According to him, changes in private investment result into the
fluctuation in aggregate demand and thus causes the problems of cyclical
unemployment.
Determination of
National Income (or GNP)
National income is defined in terms of the value of
all finished goods and services produced in a country throughout the year.
Gross National Product (GNP), also called the level of national income,
indicates the economic performance of the country in a year and thus determines
the aggregate living standards of the countrymen. The per capital national
income is directly proportional to the amounts of goods and services available
for consumption per individual on an average. The magnitude of employment goes
side-by-side with the size of national income in the presence of technology
used for production. The ups and downs in economic activity mainly reveal
themselves in the form of changes in employment and national income. The size
of national income generated causes the potential GNP or full-employment level
of income, if all the resources in an economy are being utilized for the
process of production. In a market economy, the changes in aggregate demand
result into the variation of national income from the level of potential GNP in
the short-run.
Stagflation
It has been an uphill task for the economies to
control business cycles and attain economic stability. But during the decade of
1970s and in some later times in further decades, market economies have
witnessed a further more complex problem in the form of stagflation. Recession
or depression is associated with high unemployment and falling prices in the
business cycles. But in the seventies recession or stagnation was associated
with not only high unemployment but also rampant inflation. The high
unemployment and recession (or stagnation) existed simultaneously with high
inflation in that period and thus this problem was named as stagflation. The
Keynesian theory failed to explain this stagflation as it focuses on the demand
side. That is why, a new economic concept called as supply-side economics
originated which is capable of explaining the stagflation by focusing the
supply-side of economic activity. Stagflation is considered as a key issue
discussed under the study of modern macro economies.
Exchange Rates
Exchange rates (also known as the forex rate or foreign exchange rate or
FX rate) are defined as the rates at which the two currencies are exchanged in
the market. Transactions take place at the foreign exchange rates.
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