Table of Contents
what is Macro Economics?
•Macro economics is a branch of economics that studies the economic relationships or issues of an economy as a whole. For example – it deals with the topics such as total consumption, saving, aggregate employment, etc.
•The word macro comes from the Greek word “Makros” which means “large”.
•It investigates the principles, problems, and policies relating to the achievement of full employment and expansion of productive capacity. That’s why It is also called the “Employment Theory” or “Income Theory” . •Macroeconomics takes a top-down approach.
Question- what do you mean by a top-down approach?
Answer- It refers to an approach that identifies the big picture and all of its components.
Question- Who is the father of economics?
Answer- Adam smith.
Types of Economy:
- Capitalist economy:-
• Capitalist economy is an economic system where the means of production and distribution are governed by privately or corporately owned companies.
• In simple words – in a capitalist country, production activities are mainly carried out by private enterprises.
• It is primarily run by the private sector, without any interference from the government. The government’s role is to only maintain law and order.
• This economy’s main motive is to earn profit.
• This economic structure is also known as “free market economy” or “laissez-faire”.
• Examples of capitalist economies are Hong Kong, Singapore, Canada, UAE, Ireland, etc.
• Important features of the capitalist economy:-
(i) Role of the government is to main law & order
(ii) Profit Motive
(iii) main Role of Private Sector
(iv) Laissez-Faire (economic philosophy that opposes government inference.
2. Socialist economy:-
• In a socialist economy, the setup is exactly opposite to that of a capitalist economy. In such an economy where the factors of production are fully governed by the government. So all the factories, machinery, plants, capital, etc. are owned by a community in control of the government.
• All citizens get benefits from the production of goods and services on the basis of equal rights. Hence this type of economy is also known as the “Command Economy”.
• Basically in a socialist economy, private companies or individuals are not allowed to freely manufacture the goods and services And the production occurs according to the needs of the society and at the command of the government or the Planning Authorities.
• The ultimate aim of a socialist economy is to ensure the maximization of the wealth of a whole country. It aims to have an equal distribution of wealth amongst all its citizens, not just the welfare of its richest individuals and companies.
Question- Which type of Economy India is?
Answer- India is considered a mixed economy as both the private and public sectors exist in India and the country conducts international trade.
4 Major Sectors of Economy from Macro Economic Point of View:
The four major sectors of an economy according to the macroeconomic point of view are:
i. Households sector
ii. Business sector
iii. Government sector
iv. External sector / Foreign sector
• These four key functions are responsible for four expenditures on Gross Domestic Product (GDP).
what is Gross Domestic Product (GDP) ?
• Gross domestic product (GDP) is the total market value of all the finished goods and services produced within a country’s borders In a specific time period.
• GDP provides an economic snapshot of a country, used to estimate the size of an economy and growth rate.
• GDP can be calculated in three ways, using expenditures, production, or incomes.
• It can be adjusted for inflation and population to provide deeper awareness.