Basic Concepts of Macro Economics

ntroduction We often come across many terms in the newspaper and our daily life that are a part of macroeconomics. Some important topics under macroeconomics include inflation, money, market, investment and saving, income, business cycle, etc. Inflation is concerned with the process of rising prices and not a state of high prices. Generally inflation is of two types: demand pull and cost push inflation. Money in economics is defined as anything that is generally acceptable as a means of exchange and at the same time, acts as a measure and store of value. Money has evolved over time. Earlier the barter system of trade was prevalent. Transactions through money are a recent phenomenon. Money has various forms. Market refers to a system by which buyers and sellers come into touch with one another directly or indirectly. The two types of market are: goods market and factor market. Saving refer to that part of income, which is not spent on consumption. Saving is equal to income minus consumption. The various types of saving are personal saving and business saving, government saving, etc. Savings in plural sense referred to the total amount of saving accumulated over time. Investment is an act of adding new real capital stock to the existing one, such as machinery, tools, plants, stock of goods, etc. Income refers to the flow of goods and services or money accruing to an individual or a group of persons or an economy over a given period. Individual sell their factor services, in return of which they receive income. Business cycle is defined as recurring and fluctuating levels of economic activities that an economy experiences over a period of time. There are 5 stages of business cycle. They are: Prosperity (Expansion) Boom (Peak) Recession (Contraction)

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