Macroeconomic Concepts

1
Macroeconomic Concepts Policies

• Session Objectives
• Explain the purposes of macroeconomic policies
• Critique the flaws of macroeconomic policy
  making

2
Session Agenda

• Macroeconomic concepts/objectives
• Macroeconomic policies
• Critique of macroeconomic policy making
• Discussions

3
Macroeconomics

• Macroeconomics studies the determinants of a
  countrys overall level of economic activity
• Overall level of economic activity influences the
  goods and services available to society, income,
  and jobs

• Macroeconomics also describes policy instruments
  that government can use to influence those
  determinants in order to achieve macroeconomic
  objectives
• Output growth with low inflation and high
  employment are the main objectives
• Major policy instruments fiscal, monetary, FDI,
  trade, and exchange rate policies

4
Macroeconomic Objectives

• Output growth with low inflation

• High employment

5
Overall Economic Activity

• GDP market exchange value of goods and services
  produced for final consumption in a given period
• National income wages, rents, interest, profits
  generated from the current production plus net
  income from abroad

6
Determinants of GDP

• Consumption
• Investment
• Government spending

7
Level of GDP
CIG
(CIG)
GDP
8
Macroeconomic Policy Instruments

• Objective to influence determinants of GDP
• Fiscal instruments government spending and taxes
• Monetary instruments change interest rate

• FDI instruments encourage or discourage FDI
• Trade instruments remove or increase trade
  barriers
• Exchange rate instruments change the value of
  currency

9
Level of GDP
CIG
(CIG)
(CIG)
Recession Full Emp Inflation
GDP
10
Critique

• GDP growth does not automatically lead to
  equitable distribution of wealth
• GDP growth ? more jobs if growth is capital
  intensive
• GDP growth conceals the loss of natural resource

• Macroeconomic policies their implementation do
  not take into account their social and
  environmental impacts
• Macroeconomic policies their implementation do
  not take into account the institutional context,
  which influence the outcomes of these policies