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Sunday, December 25, 2011

macroeconomic decision

who are the macroeconomic decision makers (or ‘players’)?
Macroeconomic policies are pursued by the State itself or statutory bodies like
the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI)
and similar institutions. Typically, each such body will have one or more public
goals to pursue as defined by law or the Constitution of India itself.

These goals are not those of individual economic agents maximising their private profit or welfare. Thus the macroeconomic agents are basically different from the
individual decision-makers.
Secondly, what do the macroeconomic decision-makers try to do? Obviously
they often have to go beyond economic objectives and try to direct the deployment
of economic resources for such public needs as we have listed above. Such
activities are not aimed at serving individual self-interests. They are pursued for
the welfare of the country and its people as a whole.

Macroeconomics deals with the aggregate economic variables of an economy.
It also takes into account various interlinkages which may exist between the
different sectors of an economy. This is what distinguishes it from
microeconomics; which mostly examines the functioning of the particular sectors
of the economy, assuming that the rest of the economy remains the same.
Macroeconomics emerged as a separate subject in the 1930s due to Keynes.
The Great Depression, which dealt a blow to the economies of developed
countries, had provided Keynes with the inspiration for his writings. In this
book we shall mostly deal with the working of a capitalist economy. Hence it
may not be entirely able to capture the functioning of a developing country.
Macroeconomics sees an economy as a combination of four sectors, namely
households, firms, government and external sector

Trade with the external sector can
be of two kinds
1. The domestic country may sell goods to the rest of the world. These are
called exports.
2. The economy may also buy goods from the rest of the world. These are called
imports. Besides exports and imports, the rest of the world affects the
domestic economy in other ways as well.
3. Capital from foreign countries may flow into the domestic country, or the
domestic country may be exporting capital to foreign countries.

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