Macroeconomics 1 Economics 002 Macroeconomics (from Greek prefix "makros-" meaning "large" + "economics") is a branch of economics dealing with

the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies. With microeconomics, macroeconomics is one of the two most general fields in economics. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance. In contrast, microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets. Micro Economics is a Single Economy whereas, Macro Economics is a large Economy for example:Micro Economics consist of a single family but in Macro Economics we consider large number of families. eg: -In Macro Economics we consider about National Income of the country on the other side in Micro Economics we consider about an Individual's income or an family Income. Macro Economics has a huge concept that is it has wide concept on National Income: Macroeconomics helps us to judge the national income and modification therein. It enables us to judge the absolute and relative progress of our economy. It gives the authority to judge the absolute & relative progress of our economy. National Income is an important yard stick used to measure the economic development of the economies. It enables us to work out the per capita income which is one of the important variables used in the construction of Human development Index (HDI). Unemployment: General unemployment is a macro problem. Its analysis assumed importance after the great depression. Lord J.M. Keynes applied macro-economic analysis to find out the causes and also the remedies to the wide spread unemployment during the depression. Business Cycles: Macroeconomics also helps us analyze the cause of business cycles. Numerous macroeconomic studies have been done to analyze the causes and effects of business cycles and also suggested remedial measures. Economic Policies: Study of macroeconomics enables us to develop appropriate policy measures to control or mitigate the problems. Population, monetary, fiscal, foreign trade, foreign investment, agricultural and industrial policies are some of the examples of policies developed to tackle the macro problems. Working of the Economy: The working of the economy is complex. The study of the circular flow of a closed as well as an open economy tells us how complicated the system is, and how the millions of people who participate in the functions of production, exchange, distribution and consumption can be understood through macroeconomic analysis. Such a study also enables us to understand the problem areas which disturb the smooth working of an economy. Economic Growth and Development: Macroeconomics help to evaluate the resources and capabilities of an economy. Plans can be made and implemented to raise national income, output and employment and, hence, to bring about economic growth and economic development in the economy.

Macroeconomics 2 Economics 002 Monetary Problems: Macroeconomics helps to analyses the problems arising from frequent changes in the value of money. It is important to understand the effects of inflation and deflation on the economy. Macro-economic analysis enables us to take certain steps to counter the adverse effects of limitation and deflation in the economy. BASIC MICROECONOMICS CONCEPTS Three are central topics for macroeconomic research.[3] Macroeconomic theories usually relate the phenomena of output, unemployment, and inflation. Outside of macroeconomic theory, these topics are also extremely important to all economic agents including workers, consumers, and producers. Output and income National output is the total value of everything a country produces in a given time period. Everything that is produced and sold generates income. Therefore, output and income are usually considered equivalent and the two terms are often used interchangeably. Output can be measured as total income, or, it can be viewed from the production side and measured as the total value of final goods and services or the sum of all value added in the economy. Macroeconomic output is usually measured by Gross Domestic Product (GDP) or one of the other national accounts. Economists interested in long-run increases in output study economic growth. Advances in technology, accumulation of machinery and other capital, and better education and human capital all lead to increased economic output over time. However, output does not always increase consistently. Business cycles can cause short-term drops in output called recessions. Economists look for macroeconomic policies that prevent economies from slipping into recessions and that lead to faster long-term growth. Unemployment The amount of unemployment in an economy is measured by the unemployment rate, the percentage of workers without jobs in the labor force. The labor force only includes workers actively looking for jobs. People who are retired, pursuing education, or discouraged from seeking work by a lack of job prospects are excluded from the labor force. Unemployment can be generally broken down into several types that are related to different causes. Classical unemployment occurs when wages are too high for employers to be willing to hire more workers. Wages may be too high because of minimum wage laws or union activity. Frictional unemployment occurs when appropriate job vacancies exist for a worker, but the length of time needed to search for and find the job leads to a period of unemployment.[5] Structural unemployment covers a variety of possible causes of unemployment including a mismatch between workers' skills and the skills required for open jobs.[6] Large amounts of structural unemployment can occur when an economy is transitioning industries and workers find their previous set of skills are no longer in demand. Structural unemployment is similar to frictional unemployment since both reflect the problem of matching workers with job vacancies, but structural unemployment covers the time needed to acquire new skills not just the short term search process. Inflation and deflation A general price increase across the entire economy is called inflation. When prices decrease, there is deflation. Economists measure these changes in prices with price indexes. Inflation can occur when an economy becomes overheated and grows too quickly. Similarly, a declining economy can lead to

Macroeconomics 3 Economics 002 deflation. Central bankers, who control a country's money supply, try to avoid changes in price level by using monetary policy. Raising interest rates or reducing the supply of money in an economy will reduce inflation. Inflation can lead to increased uncertainty and other negative consequences. Deflation can lower economic output. Central bankers try to stabilize prices to protect economies from the negative consequences of price changes. Macroeconomic policies To try to avoid major economic shocks, such as The Great Depression, governments make adjustments through policy changes they hope will stabilize the economy. Governments believe the success of these adjustments is necessary to maintain stability and continue growth. This economic management is achieved through two types of governmental strategies:

The first Aquino administration inherited a large fiscal deficit from the previous administration, but managed to reduce fiscal imbalance and improve tax collection through the introduction of the 1986 Tax Reform Program and the value added tax. The Ramos administration experienced budget surpluses due to substantial gains from the massive sale of government assets and strong foreign investment in its early years. However, the implementation of the 1997 Comprehensive Tax Reform Program and the onset of the Asian financial crisis resulted to a deteriorating fiscal position in the succeeding years and administrations. The Estrada administration faced a large fiscal deficit due to the decrease in tax effort and the repayment of the Ramos administrations debt to contractors and suppliers. During the Arroyo administration, the Expanded Value Added Tax Law was enacted, national debt-to-GDP ratio peaked, and underspending on public infrastructure and other capital expenditures was observed. The Central Bank of the Philippines was established in June 1948 and began operation the following January. It was charged with maintaining monetary stability; preserving the value and covertibility of the peso; and fostering monetary, credit, and exchange conditions conducive to the economic growth of the country. In 1991 the policy-making body of the Central Bank was the Monetary Board, composed of the governor of the Central Bank as chairman, the secretary of finance, the director general of the National Economic and Development Authority, the chairman of the Board of Investment, and three members from the private sector. In carrying out its functions, the Central Bank supervised the

Fiscal policy Monetary policy Fiscal policy refers to the "measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures. Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals."[1] In the Philippines, this is characterized by continuous and increasing levels of debt and budget deficits, though there have been improvements in the last few years.[2] The Philippine governments main source of revenue are taxes, with some nontax revenue also being collected. To finance fiscal deficit and debt, the Philippines relies on both domestic and external sources. Fiscal policy during the Marcos administration was primarily focused on indirect tax collection and on government spending on ecnomic services and infrastructure development.

Macroeconomics 4 Economics 002 commercial banking system and managed the country's foreign currency system. From 1975 to 1982, domestic saving (including capital consumption allowance) averaged 25 percent of GNP, about 5 percentage points less than annual gross domestic capital formation. This resource gap was filled with foreign capital. Between 1983 and 1989, domestic saving as a proportion of GNP declined on the average by a third, initially because of the impact of the economic crisis on personal savings and later more because of negative government saving. Investment also declined, so that for three of these years, domestic savings actually exceeded gross investment. From the time it began operations until the early 1980s, the Central Bank intervened extensively in the country's financial life. It set interest rates on both bank deposits and loans, often at rates that were, when adjusted for inflation, negative. Central Bank credit was extended to commercial banks through an extensive system of rediscounting. In the 1970s, the banking system resorted, with the Central Bank's assistance, to foreign credit on terms that generally ignored foreign-exchange risk. At the start of the 1980s, the government introduced a number of monetary measures built on 1972 reforms to enhance the banking industry's ability to provide adequate amounts of long-term finance. Efforts were made to broaden the capital base of banks through encouraging mergers and consolidations. A new class of banks, referred to as "expanded commercial banks" or "unibanks," was created to enhance competition and the efficiency of the banking industry and to increase the flow of long-term saving. Qualifying banks--those with a capital base in excess of P500 million--were allowed to expand their operations into a range of new activities, combining commercial banking with activities of investment houses. The functional division among other categories of banks was reduced, and that between rural banks and thrift banks eliminated.