Topic 1 :

Introduction To Macroeconomics
At the end of this chapter, student should be able to:

 define macroeconomics
 distinguish between macroeconomics and
microeconomics
 explain the macroeconomics goals
 explain the problem of macroeconomics goals
 define Aggregate Demand (AD) and Aggregate Supply
(AS)
 draw AD and AS curves
 Identify factors that shift AD and AS curves
 Macroeconomics is a field of economics that studies the
relationship between aggregate variables such as
income, purchasing power, price and money. This
means macroeconomics examines the function of the
economy as a whole system, looking at how demand
and supply of products, services and resources are
determined and the factors that influence them. The goal
of macroeconomics is to explain the economic changes
that affect many households, firms, and markets at once.
 Macroeconomics is the study of a nation’s economy. It is
interested in the aggregate demand and aggregate supply
forces of the entire economy. It deals with aggregate
economics decision or behavior of an economy as a whole;
for example, the problem of inflation, level of unemployment,
and payment of a deficit.
 It studies a nation’s total output (GDP) as a whole, and the
economic forces at work. These areas include:
a) unemployment rate
b) inflation rate
c) growth of domestic products
d) foreign exchange rates
 Microeconomics is the study of economics in a smaller
context in many different areas. These areas include the
study of:
a) the individual consumer (consumer behaviour)
b) an individual firm (production theory)
c) a single industry (market structures)
 Microeconomics
Analyzes the detailed households, firms, or
industries behaviour
Studies how individuals like consumers,
owners of production, and business firms
make decisions in the market; resource
allocation; how relative prices, outputs, and
the distribution of income are determined
Studies how rational consumers maximize
satisfaction; how suppliers maximize
profits or minimize costs
Major goals are efficiency and optimization
Macroeconomics
Analyzes economic activities as a whole
or aggregate
Studies the entire society where the sum
of sets of micro variables yields aggregate
(macro) variables; fir example, number of
workers employed by various firms
becomes national employment
Focuses on aggregate variables relevant
to an entire economy such as general
price level, consumption, investment, and
government expenditure
Major goals are national income,
employment, unemployment rate, general
price level stability, low inflation rate,
economic growth and international trade
Which of the following is a microeconomics statement and
macroeconomics statement?

a. The gross profit of all Malaysian business were

RM10 billion last year.
b. The price of beef declined by 1% last month.
c. The unemployment rate of Malaysia is 4.5% in 2012.
d. The price of chicken increases during Chinese New
Year.
e. The inflation rate of Malaysia is 3.1% in 2010.
 Macroeconomics is an aggregate study of the economy
of a country. We study aggregate demand, aggregate
supply, national income, national output, aggregate
consumption, aggregate saving, aggregate investment,
aggregate expenditure. General level of employment,
business fluctuations, general price level, foreign trade
and balance of payments.
 National income, also known as national product, is the
total value of all final goods and services produced by an
economy in a given time period.
Pendapatan negara, juga dikenali sebagai keluaran negara, adalah
jumlah nilai semua barangan akhir dan perkhidmatan yang
dikeluarkan oleh sesebuah ekonomi dalam jangka masa tertentu.

 Two concepts most commonly used is the Gross

National Product (GNP) and Gross Domestic Product
(GDP).
 Gross National Product (GNP) is the value of all final
goods and services produced by factors of production
owned by a resident of a country in one year.
Keluaran Negara Kasar (KNK) adalah nilai semua barangan akhir
dan perkhidmatan yang dikeluarkan oleh faktor-faktor pengeluaran
yang dimiliki oleh penduduk sesebuah negara dalam satu tahun.
 Gross Domestic Product (GDP) is the value of all final
goods and services produced by factors of production
located in a country in one year.
Keluaran Dalam Negara Kasar (KDNK) adalah nilai semua
barangan akhir dan perkhidmatan yang dikeluarkan oleh faktor-
faktor pengeluaran yang terletak di dalam sesebuah negara dalam
satu tahun.
 Employment refers to the total labour force employed by
the various economic activities to produce goods and
services within a country, i.e. the number of people
willing to work and have found a job.
Gunatenaga merujuk kepada jumlah tenaga buruh yang digunakan
oleh pelbagai aktiviti ekonomi untuk menghasilkan barangan dan
perkhidmatan dalam sesebuah negara, iaitu bilangan orang yang
sanggup bekerja dan telah mendapat pekerjaan.

Employment = Total Labour Force – Total Unemployment

 Unemployment refers to the total labour force that is not
used by other economic sectors in the production of
goods and services, i.e. the number of people willing to
work but did not get a job.
Pengangguran merujuk kepada jumlah tenaga buruh yang tidak
digunakan oleh sektor ekonomi yang lain dalam pengeluaran
barangan dan perkhidmatan, iaitu bilangan orang yang sanggup
bekerja tetapi tidak mendapat pekerjaan.

Unemployment Rate = Total Unemployment x 100%

Total Labour Force
 Inflation is the situation where there is a continued and
unrestricted increase in the general price level, i.e. it
refers to a situation where too much money is chasing a
few goods.
Inflasi adalah suatu keadaan di mana tingkat harga umum bagi
barangan dan perkhidmatan meningkat secara berterusan dan tidak
terbatas, iaitu merujuk kepada situasi di mana wang yang banyak
mengejar barang yang sedikit.

 The effects of inflation are; an increase in the cost of

living, a decrease in the value of money and a decline in
the overall welfare level.
 Inflation is usually measured by calculating the
percentage change in the consumer price index (CPI).
Inflasi biasanya diukur dengan mengira peratusan perubahan
indeks harga pengguna .

 CPI is the average of the prices of goods and services

contained in the consumer basket (consumption basket)
household.
CPI adalah purata harga-harga barangan dan perkhidmatan yang
terdapat dalam bakul pengguna isirumah.

Inflation Rate = Current Year CPI – Previous Year CPI x 100%

Previous Year CPI

 Balance of payments (BOP) is a financial statement
showing the record of a country’s trade transactions with
foreign countries within a year.
 Balance of payments surplus occurs when the total
payments received from abroad exceed the total
payments made to foreign countries in a year.
 Economic growth refers to the development of economic
activities which result in the increase of production of
goods and services and social welfare.
 The growth rate is usually used to measure a country’s
economic performance.
 Achieving Full Employment
 Maintaining Price Stability
 Sustainable Economic Growth
 Fair and Equitable Distribution of Income
 Competitive International Trade
 Equilibrium in Balance of Payments
 Full employment is achieved when all available
resources (labour, land, capital and entrepreneur) are
fully utilized to produce goods and services.
Guna tenaga penuh dicapai apabila semua sumber yang ada
(buruh, tanah, modal dan usahawan) digunakan sepenuhnya untuk
menghasilkan barangan dan perkhidmatan.

 An economy should use all its available resources more

efficiently to attain maximum output.
Ekonomi perlu menggunakan semua sumber yang ada dengan
lebih berkesan untuk mencapai output maksimum.
 In reality, the situation of full employment can not be
achieved. However, in practice, economists say a
country has reached full employment if there is low
unemployment rate, which is about 3% to 5% and
unemployment is frictional unemployment occurs and
sometimes structural unemployment that is always there
in the long short.
Dalam realiti, keadaan guna tenaga penuh tidak boleh dicapai.
Walau bagaimanapun, secara praktiknya, ahli ekonomi mengatakan
sesebuah negara telah mencapai guna tenaga penuh sekiranya
terdapat kadar pengangguran yang rendah, iaitu kira-kira 3% hingga
5% dan pengangguran yang berlaku merupakan pengangguran
geseran dan kadang-kadang pengangguran struktur yang sentiasa
ada dalam jangka pendek.
 Therefore, the more the resources employed, the higher
the output of goods and services.
Oleh itu, lebih banyak sumber-sumber yang digunakan, semakin
tinggi pengeluaran barangan dan perkhidmatan.

 When there is unemployment, it means that an available

resource is not being used. This indicates inefficiency
and waste of resources.
Apabila berlaku pengangguran, ia bermakna bahawa sumber yang
ada tidak digunakan. Ini menunjukkan ketidakcekapan dan
pembaziran sumber.
 Generally, price stability means there are minimum
changes in general price levels. This also means that the
prices of some goods and services may increase, while
some other prices may drop at the same time.
Secara amnya, kestabilan harga bermakna terdapat perubahan
minimum dalam tingkat harga umum. Ini juga bermakna bahawa
harga beberapa barangan dan perkhidmatan mungkin meningkat,
manakala ada harga lain boleh jatuh pada masa yang sama.

 Stability is achieved by avoiding or limiting fluctuations in

production, employment, and prices.
 Maintaining stability is beneficial because it means
uncertainty and disruptions in the economy are avoided,
thus consumers and businesses can safely pursue long-
term consumption and production plans. Policy makers
are usually most concerned with price stability and the
inflation rate.
Mengekalkan kestabilan memberi manfaat kerana ia bermakna
ketidakpastian dan gangguan dalam ekonomi dapat dielakkan,
dengan itu pengguna dan perniagaan boleh meneruskan pelan
penggunaan dan pengeluaran jangka panjang dengan selamat.
Pembuat dasar biasanya paling mengambil berat dengan kestabilan
harga dan kadar inflasi.
 There is an increase in the real per capita income from
year to year. Economic growth is achieved by increasing
the economy’s ability to produce goods and services.
Economic growth is also indicated by increases in the
quantities of the resources (labour, land, capital and
entrepreneurship) – that used to produce goods.
 Terdapat peningkatan dalam pendapatan per kapita benar dari
tahun ke tahun. Pertumbuhan ekonomi dicapai dengan
meningkatkan keupayaan ekonomi untuk menghasilkan barangan
dan perkhidmatan. Pertumbuhan ekonomi juga ditunjukkan oleh
peningkatan dalam kuantiti sumber (buruh, tanah, modal dan
keusahawanan) - yang digunakan untuk menghasilkan barang-
barang.
 With economic growth, society gets more goods that can
be used to satisfy more wants and needs – people are
better off; living standard rise; and scarcity is less of a
problem.
 When there is steady growth only, the people of a
country will be able to enjoy higher real income and
consume more and better quality goods and sevices.
 Therefore, the government should take efforts to
increase the country’s output of goods and services by
controlling population and price levels.
 A more equitable distribution of income may help
accelerate growth and promote economic development.
The proportion of income spent for the poorer is higher
so the redistribution of income will increase consumption
and thus aggregate demand.
 Governments implement economic policies to ensure the
poor are able to access healthcare and education, which
will improve the quality and quantity of factors of
production in the long run.
 A good short run solution would be a progressive tax
system with transfer payments, such as subsidies,
unemployment benefits and disability benefits. By taxing
higher income groups more than lower income groups,
the income can be redistributed from the rich to the poor.
 A good long run policy would be to improve the access
to education and healthcare, create more jobs and
reduce corruption.
 Countries in the world often trade with each other for the
mutual benefit of the exchange process.
 A country carrying out an open economic policy and actively
involved in international trade is believed to reach a higher
level of production, consumption, and aggregate economic
welfare than a closed economy.
Sesebuah negara yang menjalankan dasar ekonomi terbuka
dan terlibat secara aktif dalam perdagangan antarabangsa
adalah untuk mencapai tingkat pengeluaran, penggunaan,
dan kebajikan ekonomi agregat yang lebih tinggi
dibandingkan dengan ekonomi tertutup.
 Therefore, rapid international trade is one of the main goals of
a country’s economy.
 It is the responsibility of the government to secure a
favourable balance of payments situation. For this, the
government has to ensure that the level of imports
doesn't exceed the country's exports during a given
period of time. A persistent deficit in the balance of
payments will have to be corrected.
Adalah menjadi tanggungjawab kerajaan untuk menjamin keadaan
keseimbangan pembayaran yang baik. Untuk ini, kerajaan perlu
memastikan bahawa tingkat import tidak melebihi eksport negara
dalam tempoh masa tertentu. Defisit berterusan dalam imbangan
pembayaran perlu diperbetulkan.
 We have discussed a government’s main objectives,
which are to achieve full employment, price stability,
economic growth and equitable distribution of income.
 However, it is impossible for a government to achieve all
four macroeconomic goals simultaneously – some of
these goals will be in conflict with the others when the
government tries to implement them.
Walau bagaimanapun, adalah mustahil bagi kerajaan untuk
mencapai empat matlamat makroekonomi pada masa yang sama -
beberapa matlamat ini akan bercanggah dengan yang lain apabila
kerajaan cuba untuk melaksanakannya.
Here are some examples of how a government will not be
able to implement two particular goals at the same time.

1. Goals: Full employment and price stability

 In order to achieve full employment, the government will
use expansionary policy by reducing interest rates,
decreasing taxes and increasing government spending.
Untuk mencapai guna tenaga penuh, kerajaan akan menggunakan
dasar/polisi mengembang dengan mengurangkan kadar faedah,
mengurangkan cukai dan meningkatkan perbelanjaan kerajaan.
 This policy will reduce the unemployment rate and
increase the wage rate, as a result of higher demand for
labour.
Dasar ini akan mengurangkan kadar pengangguran dan
meningkatkan kadar gaji, hasil daripada permintaan yang lebih
tinggi untuk buruh.

 As the wage rate increases, the overall price level tends

to increase, which will lead to inflation.
Seiring dengan peningkatan kadar gaji, tingkat harga keseluruhan
cenderung meningkat, yang akan membawa kepada inflasi.
 On the other hand, the government will control inflation
by increasing interest rates and taxes, as well as
decreasing government spending.
Sebaliknya, kerajaan akan mengawal inflasi dengan meningkatkan
kadar faedah dan cukai, serta mengurangkan perbelanjaan
kerajaan.

 Consequently, consumer spending will decrease and

investment also will drop. Therefore, the unemployment
rate will increase.
Oleh itu, perbelanjaan pengguna akan berkurangan dan pelaburan
juga akan jatuh. Oleh itu, kadar pengangguran akan meningkat.
2. Goals: Economic growth and price stability
 To achieve economic growth, the government should
encourage investment by reducing interest rates and
increasing government spending. A rise in investment
levels will create more job opportunities for society and
increase the national output.
Bagi mencapai pertumbuhan ekonomi, kerajaan perlu
menggalakkan pelaburan dengan mengurangkan kadar faedah dan
meningkatkan perbelanjaan kerajaan. Kenaikan dalam tingkat
pelaburan akan mewujudkan lebih banyak peluang pekerjaan
kepada masyarakat dan meningkatkan keluaran negara.
 However, when consumer spending exceeds the supply
of goods and services, there is a tendency for prices to
rise, which will also lead to inflation.
Walau bagaimanapun, apabila perbelanjaan pengguna melebihi
penawaran barangan dan perkhidmatan, terdapat kecenderungan
untuk harga meningkat, yang akan membawa kepada inflasi.
 Similarly, to keep the price stable, the government would
increase the interest rate and reduce government
spending.
Begitu juga, untuk mengekalkan harga yang stabil, kerajaan akan
menaikkan kadar faedah dan mengurangkan perbelanjaan
kerajaan.

 Therefore, consumer spending and investment levels

will decrease. This will restrict economic growth.
Oleh itu, perbelanjaan pengguna dan tingkat pelaburan akan
berkurangan. Ini akan menyekat pertumbuhan ekonomi.
3. Goals: Economic growth and equilibrium in balance
of payments
 When the economy is growing very fast, consumers tend
to spend more on goods and services. As the
consumer’s income increases, the preferences for
imported goods will be higher than local goods.
Apabila ekonomi berkembang sangat cepat, pengguna cenderung
untuk menghabiskan lebih banyak ke atas barangan dan
perkhidmatan. Dengan peningkatan pendapatan pengguna,
keutamaan bagi barangan yang diimport akan lebih tinggi daripada
barangan tempatan.
 Therefore, the value of imports will be greater than the
value of export for that country. This will cause a huge
deficit in the balance of payments.
Oleh itu, nilai import akan lebih besar daripada nilai eksport bagi
negara itu. Ini akan menyebabkan defisit yang besar dalam
imbangan pembayaran.

 Since the implementation of the World Trade

Organization (WTO), it is impossible for any country to
use barriers such as exchange controls or import
controls to adjust the balance of payments.
Sejak pelaksanaan Pertubuhan Perdagangan Dunia (WTO), adalah
mustahil untuk mana-mana negara menggunakan halangan seperti
kawalan pertukaran atau kawalan import untuk menyesuaikan
imbangan pembayaran.
 The possible way for a government to adjust a deficit in
the balance of payments is by lowering the economic
growth.
Cara yang mungkin bagi kerajaan untuk menyesuaikan defisit
dalam imbangan pembayaran adalah dengan mengurangkan
pertumbuhan ekonomi.