[Economics] Macro Economics

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.