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Karnataka Class 12 Commerce Economics Some Macro-Economic Identities Notes

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities Notes

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities : The Karnataka State Open University established on 1st June 1996 vide Karnataka Govt. Notification No. ED 1 UOV 95 dated 12th February 1996 – KSOU Act 1992 is considered to be a reputed Open University amongst the open learning institutions in the country. Keeping in view the educational needs of our country, in general, and state in particular the policies and programmes have been geared to cater to the needy.

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities Notes

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities : Macro economics is the study of the whole economy. It looks at ‘aggregate’ variables, such as aggregate demand, national output and inflation.

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Macro economics is concerned with

  • Monetary / fiscal policy. e.g. what effect does interest rates have on the whole economy?
  • Reasons for inflation, and unemployment
  • Economic growth
  • International trade and globalization
  • Reasons for differences in living standards and economic growth between countries.
  • Government borrowing

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities Notes

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities : Macroeconomics, on the other hand, is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such as Gross Domestic Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation’s capital account or how GDP would be affected by unemployment rate.

Macro economic analysis

AD-AS

This looks at all goods and services produced in the economy.

Futures of Macro Economics

1. Macro Economics studies economic problems relating to an economy viz., National Income, Total Savings etc.

2. Macro Economics studies the problems of economic growth, employment and income determination etc.

3. In Micro Economics economic variables are mutually inter-related independently.

4. In Micro Economics economic variables are mutually inter-related independently.

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities Notes

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities : Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, as opposed to individual markets. This includes national, regional, and global economies. Macroeconomics involves the study of aggregated indicators such as GDP, unemployment rates, and price indices for the purpose of understanding how the whole economy functions, as well as the relationships between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance.

Evolution of macroeconomics SCOPE OF MACRO ECONOMICSINTEGRATION OF MICRO & MACRO ECONOMICS Separation of micro & macro economics Macroeconomics variables & functions Economic model Macroeconomic problems

Classical Macroeconomics:
Till 1930 the
Great Depression
regarding working of the economy was presented by classical economists like Smith, Ricardo, Say and Marshall. According to the classical economists in the
real sector of the economy
“Supply creates its own demand”
Thus we see the classical economists on the basis of 
• Flexibility of prices
• Flexibility of rate of interest
• Flexibility of wages
• Constancy of velocity of circulation of money proves thatthere is always full employment in the economy

Scope of Macroeconomics:

The study of macroeconomic theory is important for several reasons.
• It provides us with tools by which we can judge the performanceof an economy. The performance of an economy is judged by theGross National Product (GNP) of the economy.
• It is generally assumed that the objective of the government inany country is to raise the material well being of the country.Now the question is how to define the material well being of thecountry. These questions are discussed in welfare economicswhich forms a part of macroeconomics theory
Macroeconomic theory is also useful to the government forformulating appropriate policies such as monetary policy, fiscalpolicy, income policy, etc.
• In many developing countries the objective of the government isto promote economic development. For this the governmentshould know the factors influencing the process of economicdevelopment so that these factors can be manipulated. For thisreason also the knowledge of macroeconomic theory is essential.
• For any business firm the knowledge of macroeconomic theory isrequired
.
• From the theoretical standpoint also the knowledge omacroeconomic theory is necessary

Macro Economics

Pros:

  • It is helpful in determining the balance of payments along with the causes of deficit and surplus of it.
  • It makes the decision regarding economic and fiscal policies and solves the issues of public finance.

Cons:

  • Its analysis says that the aggregates are homogeneous, but it is not so because sometimes they are heterogeneous.
  • It covers only the aggregate variables which avoid the welfare of the individual.

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities Notes

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities : Macroeconomics is the branch of economics that concentrates on the behaviour and performance of aggregate variables and those issues which affect the whole economy. It includes regional, national and international economies and covers the major areas of the economy like unemployment, poverty, general price level, GDP (Gross Domestic Product), imports and exports, economic growth, globalisation, monetary/ fiscal policy, etc. It helps in resolving the various problems of the economy, thereby enabling it to function efficiently.

Examples: Aggregate Demand, National Income, etc.

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities Notes

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities : The micro economics is the study of an economic behavior of a particular individual, firm, or household, i.e. it studies a particular unit. On the other hand, macro economics is the study of the economy as a whole i.e., not a single unit but the combination of all, firms, households, nation, etc.

‘Economics’ is defined as the study of how the humans work together to convert limited resources into goods and services to satisfy their wants (unlimited) and how they distribute the same among themselves. Economics has been divided into two broad parts i.e. Micro Economics and Macro Economics. Here, in the given article we’ve broken down the concept and all the important differences between micro economics and macro economics, in tabular form, have a look.

Key Differences between Micro and Macro Economics

The points given below explains the difference between micro and macro economics in detail:

  1. Microeconomics studies the particular market segment of the economy, whereas Macroeconomics studies the whole economy, that covers several market segments.
  2. Micro economics stresses on individual economic units. As against this, the focus of macro economics is on aggregate economic variables.
  3. While microeconomics is applied to operational or internal issues, environmental and external issues are the concern of macro economics.
  4. Microeconomics deals with an individual product, firm, household, industry, wages, prices, etc., while Macroeconomics deals with aggregates like national income, national output, price level, etc.
  5. Microeconomics covers issues like how the price of a particular commodity will affect its quantity demanded and quantity supplied and vice versa while Macroeconomics covers major issues of an economy like unemployment, monetary/ fiscal policies, poverty, international trade, etc.
  6. Microeconomics determine the price of a particular commodity along with the prices of complementary and the substitute goods, whereas the Macroeconomics is helpful in maintaining the general price level.
  7. While analysing any economy, micro economics takes a bottom-up approach, whereas the macroeconomics takes a top-down approach into consideration.
BASIS FOR COMPARISONMICROECONOMICSMACROECONOMICS
MeaningThe branch of economics that studies the behavior of an individual consumer, firm, family is known as Microeconomics.The branch of economics that studies the behavior of the whole economy, (both national and international) is known as Macroeconomics.
Deals withIndividual economic variablesAggregate economic variables
Business ApplicationApplied to operational or internal issuesEnvironment and external issues
ScopeCovers various issues like demand, supply, product pricing, factor pricing, production, consumption, economic welfare, etc.Covers various issues like, national income, general price level, distribution, employment, money etc.
ImportanceHelpful in determining the prices of a product along with the prices of factors of production (land, labor, capital, entrepreneur etc.) within the economy.Maintains stability in the general price level and resolves the major problems of the economy like inflation, deflation, reflation, unemployment and poverty as a whole.
LimitationsIt is based on unrealistic assumptions, i.e. In microeconomics it is assumed that there is a full employment in the society which is not at all possible.It has been analyzed that ‘Fallacy of Composition’ involves, which sometimes doesn’t proves true because it is possible that what is true for aggregate may not be true for individuals too.

Karnataka Class 12 Commerce Economics Some Macro-Economic Identities Notes

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