CHAPTER 3 : MACRO AGGREGATES, UNEMPLOYMENT AND INFLATION (MACRO ECONOMICS (Chapters 3-7)

3.1 Macro Aggregates

(A) Meaning : We have briefly drawn a distinction between micro and macro economic branches of analysis: microeconomics mainly deals with individual and small units of economic activities, whereas macroeconomics is more concerned with aggregate economic activity at the social and national levels. It deals with aggregative quantities and problems arising out of them, such as supply of money, national consumption, investment, level of effective demand, government spending, proportion of national income saved, annual growth of the economy, foreign trade, balance of payments and rate of exchange. All such macro level transactions are conveniently quantifiable and can be subjected to a mathematical approach. It is concerned not only with a fuller utilization of all existing resources such as labor, power, land, raw materials, machinery and equipment, but also with the increase of all potential resources. All such resources, supply and utilization activities relate to a very long span of time. Expectations of future changes and uncertainties about these components make the whole framework of macroeconomic analysis dynamic in nature.

(B) Its Growing Importance :The first half of the twentieth century in the form of the World War I (1914 - 18), the period of the Great Depression (1929-33) and the World War II (1939-44) taught the world an important lesson: that free and private enterprise economy is shaky in its foundations. If left uncontrolled it may cause several problems leading to grave crises and injustices to various sections of the society. Modern public authorities therefore collect large sums of national resources to the extent of about 30 to 35 percent of the national income to be allocated to public expenditure. Such an ever-increasing public expenditure enables public authority to perform a variety of regulatory, welfare-oriented and developmental functions. Some of them can be stated as:

i) Regulatory functions include maintenance of stability, high levels of employment, income and effective demand.

ii) Welfare functions include redistribution of income, alleviation of inequality and poverty, war and defense expenditure.