🔹 Definition
Macroeconomics studies the economy as a whole — dealing with aggregates like national income, employment, output, inflation, and growth.
🔹 Objectives
- Economic Growth
- Full Employment
- Price Stability
- Balance of Payments Stability
- Reduction of Inequality
🔹 Major Concepts
1. National Income Accounting
- GDP (Gross Domestic Product):Â Total value of final goods & services produced within a country.
- GNP (Gross National Product):Â GDP + Net income from abroad.
- NNP (Net National Product): GNP – Depreciation.
- Per Capita Income:Â National income Ă· Population.
- Personal Income & Disposable Income:Â Reflects income available to individuals.
2. Circular Flow of Income
Shows the flow of income and expenditure between households and firms through product and factor markets.
3. Aggregate Demand (AD) & Aggregate Supply (AS)
- AD: Total demand for goods/services (C + I + G + (X – M)).
- AS:Â Total production at a given price level.
Equilibrium occurs when AD = AS.
4. Investment
- Induced Investment:Â Depends on income.
- Autonomous Investment:Â Independent of income.
Investment depends on rate of interest and marginal efficiency of capital.
5. Consumption Function
Relationship between income and consumption — as income increases, consumption also increases but less than proportionally.
6. Multiplier Effect
An initial change in investment causes a greater change in national income.
7. Inflation & Deflation
- Inflation: Continuous rise in prices → reduces purchasing power.
- Deflation: Continuous fall in prices → discourages production.
8. Unemployment
Types:
- Frictional
- Structural
- Cyclical
- Seasonal
- Disguised
9. Fiscal Policy
Government’s policy regarding taxation and expenditure to influence overall demand.
→ Used to control inflation, unemployment, and promote growth.
10. Monetary Policy
Formulated by Central Bank (RBI) to control money supply and credit using:
- Bank rate
- Cash reserve ratio (CRR)
- Repo rate
- Open market operations
11. Balance of Payments (BoP)
Record of all transactions between residents and rest of the world.
Includes Current Account (trade in goods/services) and Capital Account (investments, loans).
12. Economic Growth & Development
- Growth:Â Quantitative increase in output.
- Development:Â Qualitative improvement in living standards, education, health, etc.
🔹 Importance of Macroeconomics
- Guides government policy-making
- Helps maintain price stability & employment
- Measures economic performance
- Useful for international comparisons
- Ensures balanced economic growth
⚖️ Micro vs Macro – Key Differences
| Basis | Microeconomics | Macroeconomics |
|---|---|---|
| Scope | Individual units (consumer, firm) | Whole economy |
| Objective | Efficiency & resource allocation | Growth & stability |
| Focus | Product & factor pricing | National income, output, employment |
| Tools | Demand & Supply | Aggregate Demand & Supply |
| Examples | Price of coffee, cost of production | GDP, inflation rate, unemployment |