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Macroeconomics as a separate branch of economics. Macroeconomics deals with the aggregate economic variables of an economy. However the great depression of 1929 and the subsequent years saw the output and employment levels in the countries of Europe and North America fall by huge amounts. The fact that the economy may have long lasting unemployment had to be theorised about and explained. The money that is earned is called revenue. It is however true that many developing countries have a significant presence of production units which are organised according to capitalist principles. Macroeconomics tries to address situations facing the economy as a whole. Adam Smith the founding father of modern economics had suggested that if the buyers and sellers in each market take their decisions following only their own self interest economists will not need to think of the wealth and welfare of the country as a whole separately. Macroeconomics emerged as a separate subject in the 1930s due to Keynes.
Final goods these are those goods which have crossed the boundary line of production and are ready for use by their final users. (a) final consumer goods (b) final producer goods investment it is a process of capital formation, or a process of increase in the stock of capital. Investment has two components (a) fixed investment (b) inventory investment at fundamental level the macroeconomy works in a circular way. The firms employ inputs supplied by households and produce goods and services to be sold to households. Households get the remuneration from the firms for the services produced by the firms. Stock is a quantity of any economic variable which is measured at a particular point of time. e.g.,100 crores population of India in 2001. Injection refers to the additions to the circular flow injections that cause expansion of the circular flow. Leakages refer to the withdrawal from the circular flow leakages causing contraction of the circular now. Domestic income is the sum total of factor income generated within the domestic territory of the country no matter it is the income accruing to residents.
Barter system means the direct exchange of one commodity to another. It can be defined as a C-C economy i.e., commodity for commodity economy. Money is anything that is generally acceptable as a means of exchange and at the same time, acts as a measure and as a store of value. According to Walker, money is what money does. (i) primary function (ii) secondary function of money (iii) contingent functions. It refers to money by order/authority of the government. It includes notes and coins. It refers to money backed up by trust between the payer and the payee. In the modern times. The sources of supply of money are government, central bank of the country and commercial banks. A central bank is an apex institution of a country that controls and regulates the monetary and financial system of the country. It refers to the minimum percentage of a bank's total deposits required to be kept with the central banks. Every bank is required to maintain a fixed percentage of its assets in the form of cash or other liquid assets.
It refers to the total demand for final goods and services in an economy during a year. It means a functional relationship between total consumption and total disposable income. Thus, C = f (y) C = consumption Y = Income if the consumption function is given on the assumption of constant marginal propensity to consume. It is called linear consumption function. Saving function is a schedule showing a functional relationship between total saving and total income. Equilibrium level of output in an economy is determined at a point where planned spending (C+I) equals the planned output or where C+I curve intersects the 45° line. It is that level of aggregate demand which becomes effective in determining equilibrium level of income because it is equal to aggregate supply. It is what the investors plan or intend or invest at different levels of income in the economy. It is what the saves plan to save at different levels of income in the economy. They refer to realised saving and investment in the economy. Ex-post saving is always equal to ex-post investment. Which states that as people become more thrift they end up saving less or same as before. It refers to that situation in the economy when AD = AS along with fuller utilization of labour forces.
Government provides certain goods and services which cannot be provided by the market mechanism i.e. by exchange between individual consumer and produces. There is however a difference between public provision and public production. Public provision means that they are financed through the budget and can be used without any direct payment. Public goods may be produced by the government or the private sector. When goods are produced directly by the government it is called public production. Revenue receipts are those receipts that do not lead to a claim on the government. They are therefore termed non-redeemable. The government also receives money by way of loans or from the sale of its assets. Loans will have to be returned to the agencies from which they have been borrowed. Revenue expenditure is expenditure incurred for purpose other than the certain of physical or financial assets of the central government. If investment falls and government spending can be raised so that autonomous expenditure and equilibrium remain the same.
It is one in which trading is done with other nations in goods and services and most often in financial assets. It is a systematic record of all economics transactions between the residents of a country and the rest of the world during a year. Transaction relating to trade in goods and services and transfer payment constitute the current account. It represents international capital transactions which includes sale and purchase of assets such as bonds, equities, lands, loans, bank accounts etc.(i) foreign investment (ii) loans (iii) banking capital transactions. it means the systematic records visible imports and exports in a given year. It refers to those international economic transactions which are taken with the motive of profit. It is a system that allows adjustments in exchange rate according to a set of rules and regulations which are officially declared in the foreign exchange market. It is the fall in the value of domestic currency in relation to foreign currency as planned by the government. In a situation, the exchange rate is fixed by the government.