This chapter of the book considers macroeconomic fundamentals. After the introduction to chapter is presented in section 1, we move on to the basic economic toolkit of demand and supply. We discover that in standard economics, the marketplace typically has two dimensions: market demand and market supply. With the aid of some graphical analysis, the market demand and market supply are individually studied in sections 2.1 and 2.2, respectively. In section 2.3 we learn that in any given market for a specific good or service, the market transaction takes place when both these schedules occur simultaneously, i.e., when both the demand and the supply curve intersect. This point of intersection is called the market equilibrium point, and this point is characterised by a single market price (at equilibrium) and a single quantity (at equilibrium). This equilibrium point thus presents two coordinates (price, quantity) that satisfy both consumers and producers alike.
Section 3 presents the concepts of aggregate demand and aggregate supply. Aggregate demand is explored in section 3.1 where we learn that it essentially depicts the relationship between the aggregate price level in any given economy and the total quantity of joint (i.e., aggregate) output demanded by a set of economic agents comprising business firms, households, the government, and by other economic agents located in the rest of the world. Likewise, aggregate supply constitutes an economic measurement reflecting the sum of all final goods and services produced and supplied within a given economy, as expressed by the total amount of money exchanged for those goods and services. This is studied in section 3.2 before we examine the coming together of these two concepts in section 3.3. This section which is the aggregate market equilibrium segment makes use of the AD/AS diagram in order to provide a better understanding of the topic. Further, an example of AD and AS in a post-crisis environment is presented in box 1.
The following section presents the macroeconomic concept of G.D.P., based on the previously presented economic concepts. Section 4.1 provides an assessment of GDP which stand for Gross Domestic Product. It is defined as the total value of all final goods and services produced in a given economy during a given period (from a national accounts perspective, this is usually considered to be a year). Section 4.2 surveys the GDP’s components which are: consumption, government expenditure, investment, and the external trade’s net effect. The next concept that is explored in this chapter is inflation in section 5. Inflation constitutes a macroeconomic measurement that reflects the general increase of the overall price level associated with a given economy. In section 6, the determinants of national income are studied including capital and labour and more. The penultimate section before the conclusion considers the circular flow of income model which is a simplified framework for the assessment of the relationship between households and business firms.
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