Gross Domestic Product (GDP), GNP, NDP, NNP,

Depreciation, Consumer price index, Inflation, Demand-

pull inflation ,Cost-push inflation, Business cycle,
Recession, Depression, Aggregate Demand(AD), Aggregate
Supply (AS), Structural Unemployment, Natural Rate of
Unemployment, Investment, Consumption, disposable
income, crowding out effect, supply shock, Sustainable
Development, commodity money, fiat money, velocity of
money, exchange rate, floating exchange rate, appreciation
and depreciation of currency , revaluation and devaluation,
tariff, balance of payments, balance of trade, net export,
trade deficit, stagflation, Marginal Propensity to Consume
and save, Monetary Policy, Fiscal Policy, Stock vs flow,
Short run, long run, Reserve requirements, Discount rate,
open market operations, money multiplier, Phillips curve,
Okun’s law, remittance
Md. Shariful Islam
Asst. Professor
FASS,BUP
 ECON 1201
Principles of Macroeconomics
Chapters
 Overview of Macroeconomics
 Measuring National Output
 Measuring the cost of living
 Consumption and Income
 Production and Growth
 Business Fluctuation and the Aggregate demand and
Aggregate supply
 Central Banking and the Monetary Policy
 Unemployment, Inflation and Economic Policy
 Exchange rates and the International Financial
Systems
 The influence of Monetary and Fiscal Policy on
Aggregate demand
 Macroeconomic Situation In Bangladesh
Learning Outcomes
By the end of this course it is expected that
the student will:
 1. know the basic principles of macroeconomics;
 2. have some knowledge of competing theories;
 3. be familiar with key macroeconomic variables and the
measurement of such variables;
 4. have a good understanding of the basic relationships
between different macro-economic variables;
 5. be able to recognize the relationships amongst the
following variables: national income, unemployment,
budget deficit, money supply, interest rate, inflation rate,
exchange rate and trade deficit;
 6. be able to understand a simple macroeconomic model
based on aggregate demand and aggregate supply;
 7. be able to understand the implications of international
trade and capital movements for macroeconomic
aggregates in a small open economy;
 8. be able to understand how government policies affect
macroeconomic outcomes and the current debates about
the choice of appropriate policies.
The principles of
HOW THE ECONOMY
AS A WHOLE WORKS
HOW THE ECONOMY AS A WHOLE WORKS
Principle #8: A country’s standard of living
depends on its ability to produce goods &
services.
 Huge variation in living standards across countries and
over time:
 Average income in rich countries is more than ten
times average income in poor countries.
 The U.S. standard of living today is about
eight times larger than 100 years ago.

8
HOW THE ECONOMY AS A WHOLE WORKS
Principle #8: A country’s standard of living
depends on its ability to produce goods &
services.
 The most important determinant of living standards:
productivity, the amount of goods and services produced
per unit of labor.
 Productivity depends on the equipment, skills, and
technology available to workers.
 Other factors (e.g., labor unions, competition from
abroad) have far less impact on living standards.

9
HOW THE ECONOMY AS A WHOLE WORKS
Principle #9: Prices rise when the government
prints too much money.
 Inflation: increases in the general level of prices.
 In the long run, inflation is almost always caused by
excessive growth in the quantity of money, which causes
the value of money to fall.
 The faster the govt creates money,
the greater the inflation rate.

10
HOW THE ECONOMY AS A WHOLE WORKS
Principle #9: Prices rise when the government
prints too much money.
 Inflation: increases in the general level of prices.
 In the long run, inflation is almost always caused by
excessive growth in the quantity of money, which causes
the value of money to fall.
 The faster the govt creates money,
the greater the inflation rate.

11
Overview of Macroeconomics
 Introduction
In this chapter we will discuss:
 Meaning of Macro Economics
 Development of Macroeconomics
 Objectives of Macroeconomics
 Instruments of Macroeconomic Policy
 Basic Concepts in Macroeconomics
 International Linkages
 Aggregate demand and Aggregate supply
 Micro and Macro Economics
Economics can be broadly divided into microeconomics
and macroeconomics.
 Microeconomics is the study of the economic system
from the perspective of households and business
firms; it focuses on the nature of individual
consumption and production units within a particular
market or economic system.
 On the other hand, macroeconomics deals with the
overall performance of the economic system; it focuses
on issues such as unemployment, inflation, economic
growth and other problems, which affect the economy
as a whole.
Micro Economics Macro Economics

Like study of a tree Like study of forest

Studies economic phenomenon Studies economic phenomenon

from the perspective of from the perspective of entire
individual entities economy or a particular sector of
economy

Deals with individual economic Deals with aggregates like

entities like consumer, firm, National Income, Foreign trade,
factor of production, etc. Inflation, Unemployment,
Balance of Payment, etc.
Central Questions of
Macroeconomics
Through the study of Macroeconomics we
try to find answers for following types of
questions

 What is economic growth?

 How can a country increase its economic
growth rate?
 What is national income?
 How is it measured?
 What is a inflationary trend?
Through the study of Macroeconomics------
------
 What are the sources of inflation?
 How can inflation be controlled?
 How is the growth of an economy related to
the rate of unemployment?
 How can unemployment be reduced?
 How is a nation’s economy related to
international economy?
 Development of Macroeconomics

 Macroeconomic analysis is a relatively recent

development in the field of economics. Before
Keynes published his revolutionary The
General Theory of Employment, Interest and
Money in 1936, there was only one school of
economic thought – the Classical School.
 Development of Macroeconomics
 Classical economists focused only on
microeconomics, believing that market forces or
price mechanism would automatically guide an
economy to full employment within a relatively
short period of time.

 However, the prolonged high unemployment rates

that gripped western private enterprise economies
during the 1930s, which is called the Great
Depression undermined this belief.
 Development of Macroeconomics
Keynes’ book, published in response to the Great
Depression, led to a new way of looking at the
economy. Though Keynesian Theory successfully
explained the cause of large-scale unemployment in
the 1930s and formulated effective policy
prescriptions, it did not put an end to the further
development of macroeconomics. New and different
reconstructions of the Classical Theory began
appearing, especially in the 1950s, from the Neo-
classical school of thought.
 Objectives of Macroeconomics

The core objectives of macroeconomic policy are

achieving:
 High level of output (GDP)
 Full employment
 Price stability
 Sustainable balance of payments
 Rapid economic growth
The Components of the Macroeconomy

Understanding how the macroeconomy works can be

challenging because a great deal is going on at one time.
Everything seems to affect everything else.

To see the big picture, it is helpful to divide the participants

in the economy into four broad groups:
•Households.

• Firms.

• The government.

• The rest of the world.

of 26
The Components of the Macroeconomy

The Circular Flow Diagram

circular flow A diagram showing the income received and payments

made by each sector of the economy.

transfer payments Cash payments made by the government to people

who do not supply goods, services, or labor in exchange for these
payments. They include Social Security benefits, veterans’ benefits, and
welfare payments.

of 26
The Components of the Macroeconomy
The Three Market Arenas

Another way of looking at the ways households, firms,

the government, and the rest of the world relate to one
another is to consider the markets in which they
interact.

We divide the markets into three broad arenas:

• The goods-and-services market.

• The labor market.

• The money (financial) market.

of 26
 Instruments of Macroeconomic
Policy
 Fiscal policy
 Monetary policy
 Exchange rate policy
 International trade policy/ Export-import
policy
 Employment policy
 Prices and incomes policy
 International Linkages

 Trade Policies

 International Financial Management

Aggregate demand and
Aggregate supply
Thank You