ch 19. macroeconomic goals and instruments.ppt
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8/20/2019 Ch 19. Macroeconomic Goals and Instruments.ppt
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MACROECONOMIC GOALS
AND INSTRUMENTS
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STATEMENT OF AIM
In this lesson, We shall discuss about:
a) What is Macroeconomicsb) What are different Macroeconomicgoals and obecti!es"c) #o$ to calculate %&' gro$th rate,
('I and Inflation rate"
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MACROECONOMICS
Macroeconomics is the stud of thebeha!ior of the econom as a $hole" It
concerns the business ccles that leadto unem*loment and inflation, as $ellas the longer+term trends in out*ut and
li!ing standards"
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MACROECONOMIC GOALS
Out*ut#igh le!el and sustainable gro$th
Em*loment#igh le!el of em*loment and lo$
in!oluntar unem*loment
Stable 'ricesInternational tradeE*ort and im*ort e-uilibrium and
echange rate stabilit
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OUTPUT
The ultimate obecti!e of economicacti!it is to *ro!ide the goods and
ser!ices that the *o*ulation desires"The most com*rehensi!e measure ofthe total out*ut in an econom is the
Gross Domestic Product (GDP).
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%.OSS &OMESTI(
'.O&/(TTotal mar0et !alue of all final goods and ser!ices *roduced$ithin a countr in a gi!en *eriod of time 1usuall acalendar ear)"When ou calculate the estimated !alue that defines the $orth of an countr2s
ser!ices *ro!ided and *roductioncarried out o!er a $hole ear, then ourefer to it as that countr2s %&'"
GDP = consumption + investment +(government spending) + (exports –imports).
GDP = C + I + G + (X-M)
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EMPLOMENT
The unem*loment rate measures thefraction of the labour force that is
loo0ing for but cannot find the $or0"The labour force includes all em*loed*ersons and those unem*loed
indi!iduals $ho are see0ing obs" The unem*loment rate tends to mo!e$ith the business ccle"
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STA!LE PRICES
The third macroeconomic goal is tomaintain stable *rices $ithin freemar0ets"
&efined as lo$ and stable inflation rate
A mar0et econom uses *rices as a
ardstic0 to measure economic !alues"
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The rate of inflation measures changesin the le!el of *rices" It denotes the rateof gro$th or decline of the *rice le!el
from one ear to the net"
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('I
The consumer *rice inde 1('I) is thego!ernment3s 0e inflation indicator" The4ureau of 5abor Statistics calculatesthe ('I each month"
This inde is based on data related toconsumer s*ending habits and the
*rices *aid for a !ariet of goods,including food, clothing, medications,energ, homes and furnishings"
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&etermine the goods and the time frame for $hichou are interested in measuring the inflation rate"
For sim*licit3s sa0e, that ou are interested in theinflation rate for a bas0et of goods that includes a gallon of mil0, a loaf of bread
and a Maga6ine"
(alculate the number of units ou *urchase ofthese goods and the *rices ou *aid one ear ago"
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Four gallons of mil0,Three loa!es of bread And a Maga6ine *er month And that one ear ago, ou *aid the
follo$ing *rices:78"9 *er gallon;78 *er loaf; And 79 *er Maga6ine"
This means ou s*ent a total of 78< amonth one ear ago for these goods"
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Su**ose the current *rices are7="> for a gallon of mil078"> for a loaf of bread,$hile the *rice of a Maga6ine is thesame 79"This means ou no$ s*end 78?"> amonth for the same bas0et of items"
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T*es of Inflation
&eflation
When 'rices &ecline, means that rate ofinflation is negati!e
#*erinflation
A rise in the *rice le!el of a thousand or amillion *ercent of a ear
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INTERNATIONAL TRADE
International trade is becomingincreasingl im*ortant to most countr2seconom"
International trade is beneficial tosociet e!en if some indi!iduals areharmed b it"
International trade includes im*ort ande*ort of goods, ser!ices, ca*ital,borro$ing and lending mone etc"
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Net e*ort is the numerical differencebet$een the !alue of a countr2se*orts and the !alue of its im*orts"
When net e*orts are *ositi!e, a tradesur*lus eists"
A trade deficit occurs $hen the !alue ofim*orts is greater than the !alue ofe*orts"
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.E(A'IT/5ATION
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To Summari6e: The %oals ofmacroeconomics *olic are:
A high and gro$ing le!el of national out*ut
#igh em*loment $ith lo$ em*loment
A stable or gentl rising *rice le!el
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@/ESTIONS
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Macroeconomic Po"ic#
Instruments
A *olic instrument is an economic!ariable under the control ofgo!ernment that can affect one or more
of the macroeconomic goals
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Macroeconomic Po"ic#
Instruments
$isca" Po"ic#
Monetar# Po"ic#
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$isca" Po"ic#
Fiscal *olic is the use of go!ernment
e*enditures and taes to affectaggregate demand and aggregatesu**l"
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$isca" Po"ic#
%o!ernment e*enditure includesgo!ernment s*ending on goods andser!ices" It determines the relati!e si6e of
the *ublic and *ri!ate sectors"Taation affects the o!erall econom int$o $as:
Taes tend to reduce the amount *eo*les*end on goods and ser!icesTaes affect mar0et *rices, thereb
influencing incenti!es and beha!iour"
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Monetar# Po"ic#
Monetar *olic determines the monesu**l as $ell as interest rates, in order
to achie!e desired economic obecti!es"(hanges in the mone su**l mo!einterest rates u* or do$n and affects*ending in sectors such as in!estment,
housing, and net e*orts"
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