Ch201 - U N I T- I INTRODUCTION CHAPTER 1 TO INTRODUCTION...

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INTRODUCTION UNIT-I
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Economic decisions of individual households or firms are guided by their rational behaviour in a given market situation. Here, in our pursuit to study the logic of consumption or production decision, we limit our analysis to the determinants of choice and preferences of households or firms, respectively. Though the study of individual decision units is a necessary aspect of our enquiry into the rationale of their economic behaviour, it is by no means a sufficient condition for a complete study. So, there has to be another level of study in which the enquiry is directed to understand the general economic conditions in the economy. It is this distinction between the exercises to understand and interpret the behaviour of individual units on the one hand and the general state of the economy on the other establishes the basic difference between the subject matter of microeconomics and macroeconomics. Now, what is macroeconomics all about? In simple terms it is the study of the economy as a whole. Everyone is interested in knowing what is I NTRODUCTION TO M ACROECONOMICS C HAPTER 1 happening in the economy. Perhaps, it is the concern about the rate of inflation, level of unemployment, decline in the agricultural and industrial output, fluctuations in business activities, accumulation of foreign exchange reserves, capital market changes, recession in the world economy and so on. These are macroeconomic events that engage the attention of govern- ments, economists, entrepreneurs and even ordinary people, as all of them receive the impact of these macroeconomic events. To understand the forces behind the overall economic performance, we need concepts and theoretical frameworks and empirical measurements to assess performance in the given reference year. The subject of macroeconomics accomplishes this objective. Macroeconomic concepts are not often simple and direct; on the contrary, in microeconomics concepts such as price, profit, cost, quantity, etc. are intuitive and easy to understand. So, there is nothing difficult in comprehending a basket of apples as
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+ + I NTRODUCTION TO M ACROECONOMICS 3 an output and its price. But in macroeconomics, we have a variety of problems in the stage of definition itself.
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This note was uploaded on 04/20/2010 for the course CEDT 601 taught by Professor Ypr during the Spring '00 term at Indian Institute of Technology, Kharagpur.

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Ch201 - U N I T- I INTRODUCTION CHAPTER 1 TO INTRODUCTION...

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