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CHAPTER 3 : MACRO AGGREGATES, UNEMPLOYMENT AND INFLATION
3.1 Macro Aggregates
(A) Meaning : We have briefly drawn a distinction
between micro and macro economic branches of analysis: microeconomics
mainly deals with individual and small units of economic activities, whereas
macroeconomics is more concerned with aggregate economic activity at the
social and national levels. It deals with aggregative quantities and problems
arising out of them, such as supply of money, national consumption, investment,
level of effective demand, government spending, proportion of national
income saved, annual growth of the economy, foreign trade, balance of
payments and rate of exchange. All such macro level transactions are conveniently
quantifiable and can be subjected to a mathematical approach. It is concerned
not only with a fuller utilization of all existing resources such as labor,
power, land, raw materials, machinery and equipment, but also with the
increase of all potential resources. All such resources, supply and utilization
activities relate to a very long span of time. Expectations of future
changes and uncertainties about these components make the whole framework
of macroeconomic analysis dynamic in nature.
(B) Its Growing Importance
:The first half of the twentieth century in the form of the World
War I (1914 - 18), the period of the Great Depression (1929-33) and the
World War II (1939-44) taught the world an important lesson: that free
and private enterprise economy is shaky in its foundations. If left uncontrolled
it may cause several problems leading to grave crises and injustices to
various sections of the society. Modern public authorities therefore collect
large sums of national resources to the extent of about 30 to 35 percent
of the national income to be allocated to public expenditure. Such an
ever-increasing public expenditure enables public authority to perform
a variety of regulatory, welfare-oriented and developmental functions.
Some of them can be stated as:
i) Regulatory functions include maintenance of
stability, high levels of employment, income and effective demand.
ii) Welfare functions include redistribution of
income, alleviation of inequality and poverty, war and defense expenditure.
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Index
3. 1
Macro Aggregates
3.2 Unemployment
3.3 Inflation
Chapter 4
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