ch 19. macroeconomic goals and instruments.ppt

8/20/2019 Ch 19. Macroeconomic Goals and Instruments.ppt

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MACROECONOMIC GOALS

AND INSTRUMENTS


2/25

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"


4/25

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


5/25

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)


7/25

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"


8/25

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"


9/25

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"


10/25


11/25

('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"


12/25

&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"


13/25

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"


14/25

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"


15/25

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


16/25

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"


17/25

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"


18/25

.E(A'IT/5ATION


19/25

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


20/25

@/ESTIONS


21/25

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


22/25

Macroeconomic Po"ic#

Instruments

$isca" Po"ic#

Monetar# Po"ic#


23/25

$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"


25/25

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"

ch 19. macroeconomic goals and instruments.ppt

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