CHAPTER 9 INTRODUCTION TO MACROECONOMICS CHAPTER 9 All Rights Reserved Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974 T), 2017 1– At the end of this chapter, you should be able to Interpret.
CHAPTER INTRODUCTION TO MACROECONOMICS LEARNING OUTCOMES At the end of this chapter, you should be able to: Interpret the meaning of macroeconomics Distinguish the differences between macroeconomics and microeconomics State and explain the objectives of macroeconomics from the conventional and Islamic perspectives Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–3 INTRODUCTION TO MACROECONOMICS Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–4 INTRODUCTION TO MACROECONOMICS (cont.) Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–5 OBJECTIVES OF MACROECONOMICS Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–6 OBJECTIVES OF MACROECONOMICS (cont.) Macroeconomic Objectives from the Conventional Perspective Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–7 OBJECTIVES OF MACROECONOMICS (cont.) (1) To Achieve Full Employment Full employment does not mean there is no unemployed or jobless people in the economy It is difficult to assume that full employment refers to 100% of the labour force is being employed The potential benefits of full employment in an economy are that it can optimize the available resources efficiently The crucial consequences of unemployment to the economy are wastage of available resources and social problems Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–8 OBJECTIVES OF MACROECONOMICS (cont.) (2) To Achieve Price Stability A high degree of inflation rate that is associated with a sustained increase in the general price level can be disastrous to an economy To the consumers, inflation directly influences their purchasing power The quantity of goods and services purchased will be less if inflation is high Maintaining price stability is beneficial because it means uncertainty and disruptions in the economy are avoided It means consumers and businesses can safely pursue longterm consumption and production plans Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–9 OBJECTIVES OF MACROECONOMICS (cont.) (3) To Achieve Economic Growth Economic growth can be described as expansion in national output over a given period of time As long as a nation achieves economic growth it tells us that the economic performance is positive However, an economy will not always encounter an upward trend over time as economies tend to experience short-term ups and downs in their performance This is called a business cycle Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–10 OBJECTIVES OF MACROECONOMICS (cont.) Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–11 OBJECTIVES OF MACROECONOMICS (cont.) (4) To Achieve an Equitable Distribution of Income It is necessary to ensure that the economic growth of a nation is shared equally among the population Generally, policymakers try to ensure that there is no wide gap between the rich and the poor This is to ensure that all people are equal in terms of standard of living Disparities of income will create social friction and bring out many problems Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–12 OBJECTIVES OF MACROECONOMICS (cont.) (5) To Achieve Equilibrium in the Foreign Sector Foreign sector means economic transactions or activities that take place beyond the political boundaries If a country faces balance of payment (BOP) deficit, it means that the country will have to borrow from overseas and leads to high debt problems whereas a prolonged BOP surplus will lead to inflation Thus it is important for a country to understand and determine the favourable scale of their BOP Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–13 OBJECTIVES OF MACROECONOMICS (cont.) Macroeconomic Objectives from an Islamic Perspective Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–14 OBJECTIVES OF MACROECONOMICS (cont.) (1) Social Justice Social justice aims to achieve spiritual salvation to human happiness It is based on the principle that all existence in the universe belongs to Allah There is no difference between the rich and the poor, between the high and the low, or between the white and the black There is to be no discrimination due to race or colour or position The only criterion of a man's worth is character, ability and service to humanity Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–15 OBJECTIVES OF MACROECONOMICS (cont.) (2) Equitable Distribution of Income Islam insists on a powerful built-in income-redistribution mechanism; nevertheless some income inequality is allowed since it promotes individual initiative Social justice in Islam is rooted in man's faith Income redistribution, voluntary or compulsory, is not only an economic necessity, but also a means to spiritual salvation In Islam, happiness is not derived from the possession of material goods, but from contentment and gratitude Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–16 OBJECTIVES OF MACROECONOMICS (cont.) (3) Universal Education Acquisition of knowledge is obligatory in Islam Thus, every child, irrespective of his birth, must receive an equal opportunity to education Man’s claim to superiority over all creations is based on this superior knowledge In an Islamic economy, the government must subsidize or provide free education so that education is available to equalize man who are endowed differently in terms of wealth and property Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–17 OBJECTIVES OF MACROECONOMICS (cont.) (4) Optimal Rate of Economic Growth Growth in an Islamic economy is comprehensive and includes moral, spiritual and material aspects of man's life In terms of capital formation, it includes human capital and material capital Man is the central to all economic activities This consideration should influence the composition of investment because the expenditure on education is considered an investment Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–18 OBJECTIVES OF MACROECONOMICS (cont.) (5) Maximization of Employment Generation An Islamic economy must ensure that economic growth results in a maximum contribution to the creation of new employment opportunities Additional employment in the long run must be generated in a technically efficient manner with suitable technology in line with resource endowment Ensuring sufficient employment also includes the need to provide educational and training opportunities in specific fields Fundamentals of Economics © Oxford Fajar Sdn Bhd (008974-T), 2017 All Rights Reserved 1–19 ... Reserved 1–3 INTRODUCTION TO MACROECONOMICS Fundamentals of Economics © Oxford Fajar Sdn Bhd (00 897 4-T), 2017 All Rights Reserved 1–4 INTRODUCTION TO MACROECONOMICS (cont.) Fundamentals of Economics. . .CHAPTER INTRODUCTION TO MACROECONOMICS LEARNING OUTCOMES At the end of this chapter, you should be able to: Interpret the meaning of macroeconomics Distinguish the differences between macroeconomics. .. Bhd (00 897 4-T), 2017 All Rights Reserved 1–5 OBJECTIVES OF MACROECONOMICS Fundamentals of Economics © Oxford Fajar Sdn Bhd (00 897 4-T), 2017 All Rights Reserved 1–6 OBJECTIVES OF MACROECONOMICS