Introduction to Macroeconomics
• Key Lessons Objective
• Distinguish between microeconomics and
• Determine the broad macroeconomic plan objectives
• Define the terms inflation, deflation and disinflation
• Explain the calculation in the CPI
• Examine the accuracy in the CPI being a measure of
• Go over the causes and effects of inflation
• Clarify the guidelines for handling inflation
Micro and Macro Economics
• Microeconomics is a branch of economics that
concerns itself with the study and behaviour of
consumers and firms as well as the determination of
market prices and volumes of aspect inputs and
goods and services.
• Macroeconomics handles the study of combination
economic activity. It examines how the economic climate as a
complete works. This deals with elements that identify
national result, employment, the cost level and
total imports and exports
Macroeconomic Policy Objectives
• These are the broad monetary policy final results that
a government looks for to realise in the management
of the economy. They can be:
a. Selling price Stability (Low Inflation)
m. Full Career (Low Unemployment)
c. Economic Growth
d. Healthy Stability of Repayments
e. Salary Redistribution
farrenheit. Concern intended for the Environment
• Inflation is actually a persistent inclination for the
general level of prices to rise.
• Inflation is a continuous and persistent rise in
in the general/average price level.
• A sustained rise in the average price of goods
• This is when rates rise in and elevating rate.
Degrees of inflation
• Creeping Pumpiing: it occurs when prices rise
little by little over long periods of time. From(2%-3%)
• Hyperinflation/Galloping pumpiing: this happens
when prices rise uncontrollably. Above(100%)
• Stagflation: this is a period of simultaneous
financial inflation and business economic downturn eg ALL OF US
1979-1981. This kind of when there exists high pumpiing and
dangerous of unemployment.
• Suppressed inflation: this kind of occurs when there is a
trend for the overall price to rise but
government authorities introduce difficult price controls.
Inflation, Disinflation and Decrease
• During inflation, rates are growing at an
• Disinflation occurs when the rate of increase
in the price level is falling. That is, rates are
increasing at a decreasing price.
• Deflation occurs when the standard price level
is dropping. That is the percentage change in the
CPI can be negative.
Various other inflation conditions
• The Retail Cost Index (RPI)
• This was virtually the only measure offered until
early 80s. The index does not have any units. It is just a set
of numbers that show the regular monthly change in the
(weighted) normal of a 'basket' of goods and
• The inflation figure that you hear in news reports,
therefore , is definitely the annual percentage change in this
index, in the most recent month compared with
the same month in the earlier year. It is usually
referred to as the headline rate of inflation
• The 'X' won't actually indicate anything. It's just a label, a bit like the x-axis plus the y-axis in maths. The inflation
level calculated from the RPIX is often called
the underlying rate of inflation.
• This is exactly the same as the RPI except that among the items inside the 'basket' of goods and solutions is taken
out. This item is usually mortgage interest payments. Although
this is a very important part of most households'
monthly spending, the government opt to quote
inflation as the annual difference in RPIX. The reason for
this is the link between the main instrument accustomed to
control pumpiing (for example, interest rates) and the RPI
• This measure will take the RPIX one stage further. This kind of
is the same as the RPIX, nevertheless excludes roundabout
taxes as very well. Again, those items that have been
taken away are issues that the federal government can
• Others believe rises in indirect taxes cause the
price of a giant proportion with the goods and...