Macroeconomics - Session Summary

In this session on the ‘Fundamentals of Macroeconomics’, you got a complete overview of the critical concepts in macroeconomics. Here is a brief summary of the topics that were covered in this session:
 

 1. You learnt how macroeconomics differs from microeconomics. Macroeconomics looks at an economy from a broader perspective and helps governments and central banks with making decisions that are in the best interest of the economy and the citizens of the country.   
 

2. Then you looked at the circular flow of income from a macroeconomic perspective through an analysis of the two-sector, three-sector and four-sector models of the economy: 

• Two-sector model: Households and Businesses
• Three sector model: Households, Businesses and Government 
• Four-sector model: Households, Businesses, Government and Foreign Trade 

Through these models, you learnt how income flows in an economy and what are the roles that are played by each of these sectors in the economy. Next, you learnt how the circular flow of income in an economy can increase or decrease through injections and leakages.
 

3. Further, you learnt how national income can be measured through the Gross Domestic Product (GDP), which can be calculated as: 
GDP(Y) =  Consumption (C) + Investments (I) + Government Spending (G) + [Exports (X) - Imports (M)]

You learnt about the Expenditure approach and the Output approach to measure GDP. 
 

Then you learnt about other approaches to measure the size of an economy: Gross National Product and Net National Product. 
 

4. Next, through the concept of Productivity, you learnt how and why certain economies are more prosperous or successful than others. You learnt that productivity can be calculated by dividing the value of the total output by the number of hours spent in producing that output. 
 

5. Further, you learnt what recession means and also learnt what about the possible causes of a recession in an economy. Recession refers to a severe slowdown in economic growth, marked by falling income, decreasing GDP and increasing unemployment.

 
You also learnt how a decrease in the aggregate demand could cause a recession and also understood how a supply shock, which is a sudden shortage in the supply of an essential commodity, can cause a recession.
 

6. In the last segment, you learnt about the following two macroeconomic models:

• Aggregate Demand–Aggregate Supply (AD-AS) model: It helps you understand how spending in an economy (AD) relates to the production in that economy (AS).
• Investment-Saving and Liquidity Preference-Money Supply (IS-LM) model: It helps you understand the relationship between interest rates and money supply in an economy.

This brings us to the end of this session. In the next session, you will learn about the various macroeconomic theories and factors.

The summary of the session is provided below for your reference.

In the next session, you will learn more about the major theories and factors in macroeconomics.