1. Macro Economics
- Prabha Baid (Prodigy Investment Solutions)

2. What is Economics all about?
Two Fundamental Facts:
(i) Human Being have unlimited wants;
(ii) The means of satisfying these wants are relatively scarce from the
subject matter of economics.
The term ‘Economics’ owes its origin to the Greek
Word ‘Oikonomia’ meaning ‘Household’ .
The Subject matter of Economics divided into 2
Parts;
 Micro Economics
 Macro Economics

3. Micro-Economics:
 Prof. Boulding defines “Micro-economics is the study of
particular firms, particular households, Individual Price,
wages, income, Individual Industries and particular
commodities”.
 The term Micro Economics is derived from the Greek
word „Mikros‟ meaning „Small‟.
 In Micro-Economics we study the following:
 Product Pricing;
 Consumer Behavior;
 Factor Pricing;
 Economics conditions of a section of the people;
 Study of firms;
 Location of an Industry;

4. Macro-Economics
 Mc Connel defines, “ Macro-economics examines the
forest and not the trees. Thus it analyses and establishes
the functional relationship between large aggregates”.
 Macro Economics is derived from the Greek word
„Makros‟ meaning “Large”.
 Thus in Macro-Economics, we study the economic
behavior of the large aggregates which includes;
 National Income and Output;
 General Price Level;
 Balance of Trade and Balance of Payments;
 External Value of Money;
 Savings and Investment;
 Employment and Economic Growth;

5. Nature of Economics:

6. Economics is Science or Arts
or Both

7. Economics is a science:
What is Science?

8. Science is
 A systematic body of knowledge which studies the
relationship between cause and effect.
 It is capable of measurement.
 It has its own methodological apparatus.
 It should have the ability to forecast.

9. Do you think Economics is a
Science?

10. Economics is not a perfect Science.
Why?
 Economists do not have uniform opinion about a
particular event.
 The Subject matter of Economics is the economic
behavior of man, which is highly unpredictable.
 Money which is used to measure outcomes in economics
is itself a dependent variable.
 It is not possible to make correct predictions about the
behavior of economic variables.

11. Economics is an Art:
What is Art??

12. Art is
 A system of rules for the attainment of a given end.
 It is a practice of knowledge.
 Science teaches us to know and Art teaches us to do.
 Science is theoretical and art is practical.

13. So what is Economics?

14.  Economics is both Art and Science. It is Science in its
methodology and Arts in its application.
 Sir Cossa has said that Science and Arts are
complimentary to each other. Individually both are
incomplete.

15. Economic Problems:
Economic problem arises due to scarcity of resources.
Human wants are unlimited and productive resources
such as land and other natural resources, raw-material,
capital equipments etc. with which goods and services are
produced to satisfy those wants are scarce.

16. The economic problems are divided
into four basic problems:
 What to produce?
 How to Produce?
 For whom to Produce?
 What provisions (if any) are to be made for economic
growth?

17. Economies are divided into 3 broad
classification based on their mode of
production.
 Capitalist Economy
 Socialist Economy
 Mixed Economy

18. Capitalist Economy:
 Capitalism is the economic system in which all the means
of production are owned and controlled by private
individuals for profits. Government is not supposed to
interfere in the management of economic affairs. Such
Economy is known as “Capitalist” or a “free market
economy” or “laissez -faire economy”.

19. Characteristics of Capitalist Economy:
 The right of Private Property.
 Freedom of enterprise.
 Freedom to choice by the consumers.
 Profit motive
 Competition
 Inequalities of Incomes

20. Merits of Capitalist economy:
 To Attract the consumer the producer will bring out
newer and finer varieties of goods.
 The existence of Private property and the driving force of
profit motive results in high standard of living.
 Capitalism works automatically through the price
mechanism.
 The Freedom of enterprise results in maximum efficiency
in production.

21. Merits of Capitalist economy cont…
 All activities under capitalism enjoy the maximum
amount of liberty and freedom.
 Under Capitalism freedom of choice brings maximum
satisfaction to consumers.
 Capitalism preserves fundamental rights such as right to
freedom and right to private property
 Country as a whole benefits through growth of business
talents, development of research etc..

22. Demerits of Capitalism:
 In capitalism the enormous wealth produced is
apportioned by a few. This causes rich to become richer
and poor to become poorer.
 Welfare is not protected under capitalism, because here
the aim is profit and not the welfare of the people.
 The producer spends huge amounts of money on
advertisement and sale promotion activities like
fair, exhibitions etc.
 Economics instability in terms of over
production, economic depression, unemployment etc is
very common under capitalism.

23. Demerits of Capitalism cont…
 Class conflict arises between employer and employee.
They will be paid low wages and this lead to strikes and
lock-outs.
 Production resources are misused under capitalism. They
are used for the production of luxuries as they will bring
high profits.
 Capitalism leads to the formation of monopolies.
 There is no security of employment under capitalism.

24. Socialist Economy:
 In this economy, the material means of production
i.e., factories, capital, mines etc are owned by the whole
community represented by the state. All members are
entitled to get the benefit from the fruits of such
socialized planned production on the basis of equal rights.
A socialist economy is also called as “Command
Economy” or a “Centrally Planned Economy”.

25. Characteristics of Socialist Economy:
 Collective Ownership.
 Centrally planned Authority.
 Absence of Consumer Choice.
 Relatively Equal income distribution.
 Minimum role of Price Mechanism or Market forces.

26. Merits:
 Equitable distribution of wealth and income and
provision.
 Better utilization of resources and maximum production.
 Wastage of all kind is avoided through strict economic
planning.
 Unemployment is minimized, business fluctuation are
eliminated and stability is brought about and maintained.
 It helps the community to develop a co-operative
mentality and avoid class war.
 Ensures right to work and minimum standard of living to
people.
 Labourers and consumers are protected from the
exploitation.

27. Demerits:
 Predominance of bureaucracy, there may also be
corruption, redtapism, favoritism.
 Restricts freedom of individuals.
 It will not provide necessary incentives to hard-work in
the form of profit.
 No proper basis for cost calculation.
 State monopolies created sometimes becomes
uncontrollable. This is all the more dangerous than the
private monopolies under Capitalism.
 No freedom of choice to consumers

28. Mixed Economy
 The aim is to develop a system which tries to
include the best features of both the
controlled economy and the market economy
while excluding the demerits of both. It
appreciates the advantages of private
enterprise and private property with their
emphasis on self-interest and profit motive.

29. Characteristics of a mixed economy:
 Co-existence of Private and Public Sector:
 Private Sector
 Public Sector
 Combined Sector
 Existence of Economic planning
 Positive role of the government
 Administered price

30. Merits
 Secures the merits of both capitalism and socialism, while
avoiding the evils.
 Protects individual freedom.
 Price mechanism is allowed.
 Reducing the inequalities of wealth and class struggle.
 Avoids economic fluctuations.
 Helps under-developed countries to have rapid and
balanced economic development.

31. Demerits:
 Difficult to operate. Balancing and adjusting the public &
private sector is often difficult.
 Excessive control and heavy taxes are likely to prevail
under mixed economy.
 Problems of red-tapism, nepotism, favoritism, officialdom
etc.. are found.

32. Group Assignment:
 What was the problems faced by European countries?
What solution was adopted by EU Countries? Which type
of economy style is adopted by EU countries? Individual
inputs on suggesting the solution to resolve the issue.
 2 recommendation from each member.