Question

Explain the basic concepts of macro economics.

Answer 1

According to Kenneth Boulding, “Macroeconomics deals not with individual quantities as such but with the aggregate of these quantities; not with the individual income but with the national income; not with individual prices but with the price level; not with individual output but with the national output.”

The basic concepts of macroeconomics are as follows:

1. National Income: National income is the aggregate monetary value of all final goods & services produced in the economy in a year.
2. Saving: Saving is a part of income kept aside to satisfy future needs. Aggregate saving is the aggregate monetary value of total savings in an economy.
3. Investment: Investment refers to the mobilisation of savings and the creation of capital assets such as furniture, machinery, buildings, etc. Aggregate investment is the aggregate monetary value of total investments in an economy.
4. Trade cycle: Trade cycles are the fluctuations in business. There are ups and downs in the overall economic activity.
   These fluctuations are caused by (a) inflation and (b) deflation/depression.
   
   1. Inflation: Inflation refers to a general rise in the price of overall goods and services.
   2. Depression: Depression is a continuous fall in overall prices and a lowering of economic activity in general.
5. Economic growth: Economic growth implies an increase in the real national income over a long period of time. It is a quantitative concept.
6. Economic development: Economic development indicates economic growth plus progressive changes. It has a qualitative dimension, as it is related to the overall well-being of people.