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The whole economic theories have been divided into two parts i.e. microeconomics and macroeconomics.
The term ‘macro’ was derived from the Greek word ‘makros’, which means ‘big’ or ‘large’.
The term ‘macroeconomics’ was first used by the economist Ranger Frisch in 1933.
Microeconomics is the branch of economics concerned with large-scale or general economic factors.
It includes interest rates and national productivity.
Thus, macroeconomics analyses the performance of the entire economy.
Macroeconomics is the branch of economics; here, macro means whole.
In other words, macroeconomics is the branch of economics which is concerned with aggregate and average variables of the entire economy.
It includes national income, total employment, total output, total saving total consumption, per capital income, total investment, aggregate demand, aggregate supply, general price level etc.
In macroeconomics, we study how these aggregates and averages of the economy as a whole are determined and what causes fluctuations in them.
Therefore, macroeconomics is also known as the aggregative economics.
Macroeconomics is relatively new branch of economics.
It emerged as a separate branch of economics after the publication of JM Keynes’ book entitled The General Theory of Employment, Interest and Money in 1936.
Some definitions of macroeconomics are given by famous economists:
According to PA Samuelson, “Macroeconomics is the study of behaviour of the economy as a whole. It examines the overall level of national output, employment, prices and foreign trade.”
According to KE Boulding, “Macroeconomics deals not with individual quantities but with aggregate of these quantities, not with individual incomes but with national income, not with individual prices but with price level, not with individual output but with national output.”
Thus, macroeconomics is the study of behaviour and performance of the economy as a whole.
It also explains how the equilibrium levels of national income and employment are determined.
Therefore, macroeconomics is also known as the ‘Theory of Income and Employment.’
The concept of macroeconomics can be summarized as follows:
a. |
The word ‘macro’ has been derived from the ‘Greek’ word ‘makros’ which means large. |
b. |
Macroeconomics is the study of whole economy. |
c. |
It is also known as the aggregative economics and theory of income and employment. |
d. |
It is a relatively new branch of economics developed after the publication of Keynesian General Theory in 1936 AD. |
f. |
The major variables of macroeconomics are national income, national output, total consumption, total expenditure, total saving, total investment, etc. |
The area covered by macroeconomics is called scope of macroeconomics.
The scope of macroeconomics can be explained as follows:
Macroeconomics deals with the various concepts of national income.
Those are different elements, methods of measuring national income and difficulties in the measurement of national income.
Macroeconomics also studies social accounting, which refers to the systematic record and presentation of national income data.
Macroeconomics studies problems related to employment and unemployment.
It analyses causes, consequences and types of unemployment.
It also studies different factors determining the level of employment such as effective demand, aggregate demand, aggregate supply, aggregate consumption, aggregate investment etc.
The theory of money is an important part of macroeconomics.
Under the theory of money, we study demand and supply of money.
The changes in demand and supply of money have considerable effect on the level of employment.
Banks and other financial institutions are also part of its study.
The determinations of changes in general price level are studied under macroeconomics.
Problems concerning with inflation or rise in general price level and deflation or fall in general price level are studied under macroeconomics.
The study of theories of economic growth or increase in per capita income is the important part of macroeconomics.
It studies the economic growth of both developed and developing countries.
The monetary and fiscal policies of the government are also studied under it.
Macroeconomics also studies trade among different countries.
The theories of international trade, gains and losses of international trade, tariffs and protection etc are studied in macroeconomics.
A government may close off a specific industry from international competition through the use of quotas, subsidies, and tariffs.
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Accounting Equation |
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Basic Journal Entries in Nepali |
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Basic Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cash Book |
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Trial Balance & Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Final Account: Class 11 |
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Adjustment In Final Account |
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Capital and Revenue |
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Single Entry System |
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Non-Profit Organization (Non-Trading Concern) |
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Government Accounting |
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Goswara Voucher (Journal Voucher) |
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The variables are used to evaluate the performance and analyze the behaviour of the whole economy i.e. macroeconomic variables.
In other words, macroeconomic variable are indicators that show the situation and trends of the whole economy.
There are various macroeconomic variable like aggregate demand and supply, national income, GDP, GNP, economic growth rate, price level (rate of inflation and deflation), total investment, total saving, total consumption, trade balance, demand for and supply of money, level of employment and unemployment, total labour force, total export, total import, government budget, exchange rate etc.
Among these various macroeconomic variables, some important macroeconomic variables are as follows:
The aggregate demand refers to the quantity of goods and services that households, firms, governments and abroad customers want to purchase at each price level.
Whereas the aggregated supply refers to the quantity of goods and services that firms choose to produce and sell at each price level.
Gross domestic product is defined as the market value of all the final goods and services produced within a domestic territory of a country in a year.
It is measured in real and nominal terms.
(a) Real GDP: it is defined as the GDP measured at any previous year’s price or base year’s price.
(b) Nominal GDP: it is defined as the GDP measured at the current year’s price.
Per capita income is defined as the national income divided by the total population of a country.
It is obtained by dividing the national income by the total population of the country.
Per capital income = National income ÷ Total population
Economic growth rate is defined as the rate at which the real GDP of a country increases over a period of time.
The higher economic growth rate can be achieved by increasing the amount of factors of production and their productivity.
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Share (Accounting for Share) |
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Share in Nepali |
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Debentures |
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Final Account: Class 12 |
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Final Account in Nepali |
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Work Sheet |
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Ratio Analysis (Accounting Ratio) |
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Fund Flow Statement |
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Cash Flow Statement |
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Theory Accounting Xii |
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Theory: Cost Accounting |
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Cost Accounting |
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LIFO−FIFO |
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Cost Sheet, Unit Costing |
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Cost Reconciliation Statement |
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Price level refers to the average price of goods and services which are consumed by the consumers.
The rise in price level is called inflation whereas the fall price level is called deflation.
The rate of employment shows the percentage of total labour force or work force of the country that is at work.
On the other hand, the rate of unemployment shows the percentage of total labour force or work force of the country that is out of job despite willingness to work at the existing wage rate.
This is also known as the labour force of the country.
The total labour force refers to the percentage of population that is willing and able to work.
In Nepal, the population of age 15 to 59 is called economically active or working age population.
The balance of trade is defined as the difference between export and import of a country for a given period of time.
It is an important component of balance of payment of the country.
Balance of payment refers to the systematic record of receipt and payment of a country with the rest of the world.
Demand for money is defined as the desire of holding financial assets in the form of money, i.e. cash or bank deposits.
Money supply is defined as the total quantity of money available in the economy.
It is defined narrowly and broadly.
In the narrow sense, it consists of coins, paper currency and all the demand deposits.
On the other hand, in the broad sense, it includes coins, paper currency and all the demand deposits plus time deposits such as saving, fixed, call and margin deposits.
Narrow Money (M1) = C + DD
Where:
C = Currency (coins and paper currency) held by public
DD = Demand Deposits
Broad Money (M2) = M1 + TD
Where:
M1 = Narrow Money
TD = Time Deposits
Trade cycle is defined as the regular upward and downward movement in aggregate economic activities in the economy.
In other words, trade cycle refers to the fluctuation in the total national output, income, employment, saving, investment, consumption etc.
There are four phases of trade cycle which are as follows:
(i) Depression: in this phase, all aggregate economic activities fall to the lowest level; it is a bad condition of the economy.
(ii) Recovery: in this phase, all aggregate economic activities begin to rise.
(iii) Prosperity: in this phase, all aggregate economic activities increase to the high level.
(iv) Recession: in this phase, all aggregate economic activities begin to fall.
Government budget is defined as the statement of the financial plan of the government relating to its income and expenditure.
It consists of the report of revenue and the expenditure of the previous fiscal year, the revised estimate of revenue and expenditure of the current fiscal year, the estimate of revenue and proposals of expenditure for the coming fiscal year and the new tax proposals and changes in the tax rates.
Consumption is defined as the part of the national income which is spent on goods and services in order to derive mental or physical satisfaction.
It involves the expenditure on goods and services, such as food, clothes etc.
Saving is defined as the part of the national income which is not spent on consumption.
It is equal to the income minus consumption.
Saving = NI – C
Where:
NI = National Income
C = Consumption
Investment is defined as the part of the national income which is spent on the purchase of those goods which are used for further production of other goods and services or earning income.
It involves the expenditure on the capital goods such as machineries, factories, raw materials etc.
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