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The document discusses the importance of macroeconomics, particularly in understanding overall economic performance during events like the Great Depression and the pandemic. It explains key concepts such as aggregate demand and supply, consumer and producer behavior, and the relationship between consumption and investment expenditure. Additionally, it highlights how equilibrium prices are determined by both demand and supply, and the role of the Consumer Price Index in assessing inflation and deflation in the economy.

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Kabir Rampal
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47 views4 pages

Notes

The document discusses the importance of macroeconomics, particularly in understanding overall economic performance during events like the Great Depression and the pandemic. It explains key concepts such as aggregate demand and supply, consumer and producer behavior, and the relationship between consumption and investment expenditure. Additionally, it highlights how equilibrium prices are determined by both demand and supply, and the role of the Consumer Price Index in assessing inflation and deflation in the economy.

Uploaded by

Kabir Rampal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Great Depression 1930s made people realise imp of macro

Talks about how the overall economy performs and how to judge it

Based on two theories: (all economies face this regardless of their


models)
1) Unlimited wants – people to behave rationally
2) Limited resources- optimisation to ensure sustainable
development

Demand= willingness to buy+ purchasing power(income)


Total expenditure(consumption expenditure)= Prices x
Quantity
Total Revenue= Price x Quantity

Total Expenditure = Total Revenue


During pandemic the supply end remains unaffected but the
demand has reduced. People are taking out money from the
economy to save.

Consumption expenditure() is directly proportionate to


Investment Expenditure(Profit earned by a producer)
Investment Expenditure: Profit earned by producer+ money
put in again for the next round of production

There is always a gap/mismatch between demand and supply


which is why inflation is natural and common in an economy

To control these problems we started with the Micromarket


first to understand how an individual or a single market
performs
Consumer Theory:

Demand of a single consumer for product x


Demand of a second consumer for product x
By this you find out demand of n number of people for a
product x

D1x + D2x+ D3x+ ……….. + Dnx= MDx (market demand for a


product x)

In microeconomics we talk about demand for individual


customers to get market demand for one product(x)

D1y + D2y+ ……….+ Dny = MDy

Macroeconomics:
MDx+ MDy +….+Mdn = AD for the whole economy
(aggregate demand for the economy)

Microeconomics deals with Market for a single commodity

Equilibrium prices/ Premium pricing: Cant be determined only


by the demand side but also the supply side is required

S1x + S2x + Snx = MSx


(Market supply of a commodity x)

Production is not equal to supply


If you produce 12 goods you wont supply all 12 goods
You supply 10 and keep 2 as stock so that if your product is in
high demand you can capitalise and sell the other 2 at a higher
profit

Theory of Producer Behaviour

MSx + MSy + ……..+ MSn = Aggregate supply of goods

Price Theory:
We study prices in micro because we need to understand price
of singular commodities which leads to price of the economy or
the consumer price index

Px + Py = CPI
CPI is responsible for/ determines inflation and deflation in an
economy
435 commodities; included based on their significance
determines their inclusion in the “basket”

By getting price of each commodity we find out if there is an


inflation or deflation in the market

Macroeconomics:

1) Start off w AD(Aggregate demand and supply) and AS again


2) They determine equilibrium and disequilibrium(inflation and
deflation)
3) Inflation= AD>AS
Deflation= AD<AS
4) Spiral Effect:
CRR
SLR
Repo Rate
Bank Rate
Reverse Repo Rate

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