SCHOOL OF ECONOMICS
DEPARTMENT OF ECONOMIC THEORY
LECTURER: Dr. Mwilaria, S.M.
Mwilaria.shadrack@ku.ac.ke
EET 201: MACROECONOMIC THEORY II
CHAPTER ONE
INTRODUCTION
The decade of 1970’s and the early 1980’s was marked by several macroeconomic problems among which included the oil shock as OPEC oil cartel raised prices, leading to inflation around the world to intensify.
Several countries, including USA suffered a recession marked by high unemployment.
Several theories have been advanced to try and provide answers to the basic economic questions, which includes:
Post Keynesian
Monetarists
Demand side
Supply side views among others.
Some of the views are contradictory while others are complementary. Our main aim in this course is to explore the different economic ideas that have been developed in order to deal with and manipulate problems affecting the economies of the world.
REVISION OF SOME BASIC CONCEPRTS
The difference between microeconomics and macroeconomics.
Microeconomics theory:
Looks at the behavior of the basic subdivisions of the economy such as government, business and households.
It also studies factors affecting the relative prices of different goods and factors of production in individual market (e.g. the supply and demand for milk or motor vehicle).
Macroeconomic theory:
On the other hand is concerned with aggregate variables such as the aggregate demand by all consumers for all goods and services produced in an economy over a year or some other period.
Among the aggregate economic phenomena macroeconomic theory considers include:
a) Inflation
b) The interest rate
c) The growth rate of income/output
d) The rate of unemployment
e) Government spending
f) Private domestic investment
g) Aggregate disposable income
h) The general price level.
Macroeconomic theory is the explanation of how the aggregate variables such as national output, employment and prices interact and interconnect to produce the state of our...