Macroeconomics: Concept, Factors, and Conclusion

The provided study guide explains macroeconomics as a branch of economics that focuses on the behavior, structure, and integrity of a country's economy at large scales. It involves decision-making factors like demand, supply, employment rates, and pricing structures. The guide also discusses how certain factors such as government expenditure financed by borrowing from banking segments, purchase of government securities by central banks, and agreements between governors and treasurers to reduce inflation rates can increase money supply, leading to economic growth.

MACRO-ECONOMICS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 3...................................................................................................................................1
a. Difference between demand pull and cost push inflation ......................................................1
b) Two causes of Inflation .........................................................................................................3
QUESTION 4...................................................................................................................................4
a. Macro economics policy to achieve unemployment rate of zero............................................4
b. Classical economists interpret long-run unemployment.........................................................4
c. Difference between structured and cyclical unemployment .................................................4
QUESTION 5 ..................................................................................................................................5
a. Improvement in marketing and selling skills of firm managers .............................................5
b. Increases in personal income tax.............................................................................................6
C & d Explaining the effect on the economic activity and the price level due to the increase in
the export and the destruction in the capital stock of the economy because of the war.............7
Question 6 .......................................................................................................................................8
a. Evaluating the advantages and the disadvantages of the consumer price index.....................8
b. Explaining lose and win situation of the people at the time of inflation. ...............................9
Question 7........................................................................................................................................9
Explaining the major causes that results for the growth in the money supply. ..........................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Macro economics is related to the large scale economic factors as a whole that includes
unemployment, growth rate, gross domestic product etc. This assignment will include the
difference between demand pull and cost push inflation. Also, It will provide understanding
about the macroeconomics policy in order to measure the unemployment rate of zero.
Furthermore, it will include the information regarding consumer price index.
QUESTION 3
a. Difference between demand pull and cost push inflation
Inflation is the rate at which the prices of the goods and services which are being supplied
in the economy increases at the higher rate due to which purchasing power of the consumer
decreases.
Point of difference Demand - pull cost - push inflation
Definition When there is increase in the
demand at a faster rate than the
supply (Fontana and Sawyer,
2016).
when there is increase in the
prices of the input which result
into decrease in the supply of
outputs.
Reason It is caused by monetary and
real factors . Monetary factors
such as increase in money
supply. real factors includes
increase in exports, investment
etc.
It is caused by monopolistic
group of society
occurrence It occurs when aggregate
demand of the product and
services is higher than
aggregate supply due to
monetary and real factors
It occurs due top rise in the
factors of production
recommendation for the policy monetary and fiscal policy control on price and income
policy
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 Demand - Pull inflation : It is the inflation which arise when the demand of the products
and services is higher than the supply of out-put due top which the economy have less
product to supply which result into increase in the price level of the product and services
(Myers, 2018).
 Cost- push inflation : It is the rise in the price due to rise in the prices of the factors of
production and thus there is reduction in the supply of output.
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Illustration 1: Demand pull inflation

b) Two causes of Inflation
Causes of demand - pull inflation
 Consumption : If there is increase in the consumption level which will increase the
demand of the product and services and thus there are chances of demand pull inflation.
 Increase in money supply : When there is increase in the supply of money than the
demand of the the goods and services in the economy increases which can leads to
excessive demand than the supply which will in turn leads to demand pull inflation (Hope
and Soskice, 2016).
Causes of cost- push inflation
 Monopoly : The firm which are having monopoly in certain industry can cause the cost-
push inflation. It reduces the supply and have the control over the prices (Hendry and
Muellbauer, 2018). They have the power to increase the prices of the products and
services which will reduce the supply of the good and services in the market.
 Government regulation and taxation : Due to the government regulation , the
companies price of the product and services can be increased. The increase in tax rate
will increase the price of the product which in turn will leads to cost- push inflation.
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Illustration 2: Cost- push inflation

QUESTION 4
a. Macro economics policy to achieve unemployment rate of zero
Macro Economics policy such as monetary and fiscal policy are formulated in order to
have the price stability, full employment etc. which helps in reducing the unemployment rate in
the economy which is beneficial for the economic growth of the country. Unemployment is
closely related to the economy's aggregate output (Schneider, 2017). Zero unemployment means
that every person is having jobs. With the help of macroeconomic polices the country is able to
reduce the level of unemployment for instance with the increase in the foreign direct investment
in the country the job opportunities in the countries will be increased which in turn will helps in
reducing the employment rate. The case of zero unemployment is impossible because it will
increase the cost of labour and thus the economy will be affected.
b. Classical economists interpret long-run unemployment
As per the classical theory of unemployment in which the unemployment occurs when
wages are higher for employers to hire more workers for the jobs. The classical economist state
that the economy is capable of aching the natural level of real GDP (Myers, 2018). It is the
level of GDP which is obtain when the economy's resources are fully employed. The classical
economist assumed that there can be no chances of constant unemployment in the economy. The
economy is able to gain full employment when supply creates its own demand. Thus, there is no
person which is left unemployed in the economy as per the classical economist.
c. Difference between structured and cyclical unemployment
Unemployment is the situation where the person are jobless due to lack of opportunities
in the economy. Structured unemployment is due to reduction in the industry . This type of
unemployment exist when there is changes in the structure of the industry. With the change in
the economy the industry also changes (Fontana and Sawyer, 2016). It may be due to lack of
technology or the reduction in the demand of the product which are being manufactured by the
industry. The policymakers suggest that in order to reduce structured unemployment it is
required the firm should be provided with subsidies.
Cyclical unemployment occurs when there is change in the business cycle. The workers
loses their job due to the downturns which are being faced by the business. It is the time when
the economy is under recession and there are no job for the workers which leads to the cyclical
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unemployment in the economy. The cyclical unemployment increases with the decrease in the
demand. The policymaker in order to reduce the cyclical unemployment can use stabilization and
government policies in order to maintain the full employment and a stable price level.
QUESTION 5
a. Improvement in marketing and selling skills of firm managers
With the improvement in marketing and selling skills of firm managers the organisation
will be able to attract more consumers towards the products and services which will increase the
demand of goods and services offered by the firm which will increase the price of the product
and services because with the increases in demand of the products and services the price also
increases (Hope and Soskice, 2016). With the increase in the prices of the goods and services the
demand of the product will reduce.
If there is increase in the quantity than the price of the product also increases due to which the
supply also increases.
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Illustration 3: Demand

b. Increases in personal income tax
With the increase in the personal income tax the consumer the purchasing power will
decrease due to which the demand of the product will decrease.
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Illustration 4: Aggregate supply
Illustration 5: Decrease in demand

The increase in personal income will not have any impact on the supply of products and services.
C & d Explaining the effect on the economic activity and the price level due to the increase in
the export and the destruction in the capital stock of the economy because of the war.
Increase in the export brings the money into the economy of the country which in turn
increases the gross domestic product of the nation. Increase in the money supply will lead in
increased purchasing power and the disposable income of the consumers. This leads to rising
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Illustration 6: Aggregate supply

aggregate demand the supply in the economy. Rise in the net exports results in the shift in the
aggregate demand curve to the right side by the equal amount to multiplier time with the initial
change in the net exports (Kalkuhl, 2016). The change in the level of price cause the change in
the net exports as higher price will cause decrease in the exports and the lower price will increase
in the net exports.
On the other hand decline in the value of the stock in the economy due to the war results
in the shift of the demand curve to the left and the supply curve to the right. The price level also
gets affected as the prices decreases with the decrease in the stock value. This stage can be called
as the depression in the economy as war results in scarcity of the resources as well with very less
income and the purchasing power of the people.
Question 6
a. Evaluating the advantages and the disadvantages of the consumer price index.
Consumer price index is the measure which is used for examining the weighted average
price of the consumer goods and the services like transportation, medical care and food.
Advantages Disadvantages
Economic predictor- Consumer price index
charts facilitates the data that assist in making
the analysis regarding the fiscal policy like
increased interest rates and provides for the
ease in the supply of money.
Substitution bias- Consumer price index
includes the substitution bias which cause for
overstated rise in the price and assumes that
people will buy expensive goods rather than
switching towards buying the cheaper one
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Inflation or deflation- It helps in comparing
the prices for different periods which in turn
help in computing the inflation rate (Fuertes,
Phylaktis and Yan, 2016). By using the
consumer price index for constantly
monitoring the inflation and considered as the
essential indicator for assessing the economic
health of the nation.
which is a vague assumption in today's world.
Presence of novelty- In the consumer price
index novelty is present which results in the
temporary distortion of actual cost of the living
after the launching of the new products. For
bringing the consistency in the CPI multiple
years are taken before any innovation.
b. Explaining lose and win situation of the people at the time of inflation.
The major effects of the inflation that lead to the arbitrary changes in relation to the distribution
of the real income and the wealth in the country. Some people may lose and some people may
win due to the inflation that are as follows-
Winners- The workers that has the wages in context of their bargaining power wins from
the inflation. In case the real rate of interest is negative then the debtors also wins under the
situation of inflation. In the situation where the prices rise with the faster pace than the cost, in
that case the producers enjoy their win at the time of inflation.
Losers- The individual who retires and were working on the fixed income. Negative rate
of real returns leads the savers in a losing condition in the inflation time. In case of the negative
interest rate, lenders also loses under the inflation (Khan and et.al., 2018). Workers who work for
the job on which low payment is made are been included in the losers at the time of inflation.
Question 7
Explaining the major causes that results for the growth in the money supply.
a. Selling of the securities of government- No, selling of the government securities doe not
result in growth of the money supply as it does not lead to flow of the money in the market while
buying the securities will result in growth of the money supply (Sepehrdoust and Shabkhaneh,
2018).
b. Decline in the interest rate- Yes, in this case money supply increases because people believe
that the inflation will be increased in the future so they will buy at present which results in
growth of the money supply.
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c. Rise in the expenditure of the government that are financed by the borrowing from banking
segment- yes it leads to the increase in the money supply as the funds are injected into the
banking system by taking the borrowing from the bank.
d. Purchase of the government securities by central bank in the banking sector- Yes it helps in
increasing the money supply in the banking sector which in turn results in the development of the
economy.
e. Agreement by the governor and the treasurer of central bank in reducing the rate of the
inflation- yes, this factor also increases the growth in the money supply as if the inflation rate
decreases the purchasing power of the people increases which in turn results in the growth of
money supply.
CONCLUSION
From the above study it can be concluded that macro economics refers to such economies
which influence the economy of the country at large scale. It reflects the behaviour, structure and
integrity of the company and also helps in decision making regarding the factors such as demand,
supply, employment rates and pricing structure of the organization.
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REFERENCES
Books and Journals
Fontana, G. and Sawyer, M., 2016. Towards post-Keynesian ecological
macroeconomics. Ecological Economics. 121. pp.186-195.
Fuertes, A. M., Phylaktis, K. and Yan, C., 2016. Hot money in bank credit flows to emerging
markets during the banking globalization era. Journal of International Money and
Finance. 60. pp.29-52.
Hendry, D. F. and Muellbauer, J. N., 2018. The future of macroeconomics: macro theory and
models at the Bank of England. Oxford Review of Economic Policy. 34(1-2). pp.287-328.
Hope, D. and Soskice, D., 2016. Growth models, varieties of capitalism, and
macroeconomics. Politics & Society. 44(2). pp.209-226.
Kalkuhl, M., 2016. How strong do global commodity prices influence domestic food prices in
developing countries? A global price transmission and vulnerability mapping analysis.
In Food price volatility and its implications for food security and policy (pp. 269-301).
Springer, Cham.
Khan, S. A. R. and et.al., 2018. Green supply chain management, economic growth and
environment: A GMM based evidence. Journal of cleaner production. 185. pp.588-599.
Myers, D., 2018. Economics and property. Routledge.
Schneider, F., 2017. Macroeconomics: The financial flows of islamic terrorism. In Global
Financial Crime. (pp. 107-134). Routledge.
Sepehrdoust, H. and Shabkhaneh, S. Z., 2018. How knowledge base factors change natural
resource curse to economic growth?. Technology in Society. 54. pp.149-154.
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