👍 What is a macroeconomic?
The understanding of changes in the amount of demand and supply in price in the sense of a country is called macroeconomics.
Since the elements that make up the economy are complex and numerous, the elements that make up the macro economy are also diverse.
Words such as gross product, gross income, employment, prices, money supply, interest rates, finances, and balance of payments describe the macroeconomics.
For example, when a country's gross product increases, its national income increases, employment increases, there is unemployment, investment and consumption increase.
First, let's find out about national income.
👍 Circulation of the national economy and national income
In capitalism, the subject of production is the "enterprise".
Businesses use labor to generate profits to households with "wages" that correspond to factors of production.
Then the household wants to solve the "demand", the desire to have the company's products with the compensation received.
Companies use this to provide profits that they want to generate.
The process is called "the circular process of the national economy".
What is the national income of a country instead of how much income is generated in the circulation process.
Because it is a cycle that occurs in a country, there is a national income no matter who the subject is.
When income is calculated as the income of a company from the perspective of a producer (company), it is called "produced national income",
If calculated as an expenditure position, it becomes "expenditure national income",
When calculated as factor income (wage, interest, rent, profit), which is the cost of producing the final product, "distributed national income" is,
All three values are the same.
This is called "the principle of three-sided national income equivalent".
National income of production = total amount of final product = value-added output
Distributed national income = total factor income (wage + interest + rent + profit)
National income of expenditure = consumption + corporate investment + government expenditure + export-import
👍 Aggregate demand curve, Aggregate supply curve
It is common for people's activities to grow year by year compared to the previous year, as the number of economically active population increases, capital accumulates and advances, and production capacity grows.
But what you really need is definitely. It stumbles in the short term.
So, one of the most important goals of national policy is "economic stability".
The aggregate demand / total supply curve is used to stabilize the economy.
The market demand/supply curve in the micro-economy and the aggregate demand curve and the aggregate supply curve in the macro-economy.
👊 Aggregate demand curve
Aggregate demand is a fact of the total amount of goods and services that all sectors that make up the economy, including households, businesses, governments, and foreign sectors, intend to purchase over a given period.
In other words, the amount of value each sector wants to purchase is called household consumption, corporate investment, government spending, and net exports (export-import) from abroad, and the sum of these is "total demand".
And the amount of consumption that actually realizes the desire to buy according to "price" is called "total demand", and the curve connected through it is the demand curve.
In other words, if the point that connected the abstract desire for purchase to the actual purchase volume according to price in the microeconomy was the demand curve,
In macroeconomics, it is the aggregate demand curve that connects the abstract desires of each economic entity to purchase a significant amount of purchases according to prices.
Therefore, total demand is inversely proportional to inflation (price), and total demand itself is proportional to non-inflation factors (consumption, investment, government expenditure, net exports).
👊 Total supply curve
Gross supply is the fact of the total output (real GDP) of goods and services that companies in a country are trying to produce and sell over a given period.
If you look at the total supply curve, you can see the production/sales of all companies in a country for a given price.
The total supply curve is also affected by inflation and other factors.
First is the existence of prices.
The aggregate demand curve was always sloping to the right with the microeconomic demand curve.
However, the total supply curve takes shape depending on whether the analysis period is long or short.
Grounds for claiming the shape of the school's total supply curve
The classical school (long-term) total supply curve is vertical because the nominal wage (expressed as the amount of exchange value of a commodity called labor power) fluctuates completely flexibly with prices.
Keynesian (short-term) total supply curve is horizontal Because labor supply is a function of increasing nominal wages and nominal wages do not fall easily
Authorized
In recent years, the short-term convergence of the "long- and short-term total supply curve", the total supply curve upwards in the short-term, and the supply of goods and services in the long-term depends on the amount of labor and capital in the economy, and the production technology itself, in the long-term price level. Does not affect the effect.
Therefore, in the long run, the supply is constant regardless of the price level.
But in the short term.
If inflation is higher than expected, a larger amount of output is insufficient, and if inflation is lower than expected, it is less than natural output.
This is based on the theory of illusion, the theory of wage rigidity, and the theory of price rigidity.
The short- and long-term total supply curve itself shifts to the right due to factors other than inflation, such as the increase in labor, capital and natural resources and the development of new technologies
Reduced supply of natural resources such as crude oil goes to necessity.
Now, it becomes important for countries to get the country's prices right through the aggregate demand curve and the aggregate supply curve.
To do that, there is a “Gross Demand Management Policy”.
👍 Aggregate demand management policy
The economy may be overly booming. High inflation is likely, but an excessive recession can lead to serious unemployment.
Therefore, the country must implement policies within the range that does not sustain growth within the economic growth trend line.
So how can you do the breadth of the economic fluctuations?
Macroeconomic policies include short-term aggregate demand management policies and long-term economic growth and development policies.
Long-term economic growth and development policy is a policy aimed at economic growth and development by increasing the production base of the economy, such as improving industrial structure and expanding social indirect capital.
On the other hand, the aggregate demand management policy is a policy aimed at increasing the amount of policy, achieving full employment, stabilizing the exchange rate, balance of the balance of payments, and stabilizing the exchange rate by controlling the aggregate demand of the economy through "financial policy" and "monetary policy". In other words, the balance of the economy is determined by demand, and in the short run, fiscal policy and monetary policy use only the impact of aggregate demand, not aggregate supply.
👊 fiscal policy
The national economy is largely made up of private sector households, businesses, and public sector governments and continues to circulate.
Households are responsible for consumption, businesses and investments, and the government produces and provides public goods and public services that are not produced by households and businesses, and provides them to the private sector. Responsible for allocating resources and increasing welfare through non-income payments to those who are not related to the production activities of the current year.
At this time, the role of the government is called "finance".
And fiscal policy refers to the government's fiscal management, tax and expenditure policies, as well as policies that promote fair income distribution.
There are two types of fiscal policy: “Financial Spending Policy” and “Tax Policy”.
Fiscal expenditure policy: By adjusting the content of fiscal expenditure, it directly affects resource allocation and income redistribution, and where to efficiently influence private economic activities through its ripple effect>
Tax Policy: A policy that adjusts the tax rate or scope of tax in order to indirectly affect private economic activities by adjusting the size of the after-tax income (disposable income) of each economic entity in the private sector.
👊 monetary policy
The central bank is involved in monetary policy.
This is because controlling the amount or price (interest rate) of what is circulating in the country is a policy that aims at sustainable economic growth with the value of stability (price).
The monetary policy that central banks can unfold is largely divided into direct and indirect controls.
The direct control measures are to regulate the Yeosu new rate of banks, or to control the size of loans individually, rather than the flow of the market, but by the administrative authority granted to policy authorities.
The indirect control measures market-friendly policy measures, and the central bank controls the amount of money in the market.
Currently, Korea is mostly operated by indirect control measures.
Let's take a closer look at the means of indirect regulation.
🙌 Open market operation
This is how the Korean bank affects the amount or interest rate level in the market by buying and selling securities such as government bonds by banks against financial institutions.
🙌 Central bank credit system
It is a system in which a Korean bank makes a loan (loan) to a general bank or receives a deposit (receive).
👍 Limits of aggregate demand management policy
Fiscal policy is to control aggregate demand through changes in fiscal spending.
When government expenditure increases, aggregate demand itself increases, shifting the aggregate demand curve to the right, and eventually both prices and output (demand for goods and services) rise. However, there is a drawback that the interest rate also rises, reducing private investment.
In addition, the aggregate demand management policy has the limit of changing prices and national income in the same direction.
In other words, if you want to lower inflation, you have to face a decrease in national income, and conversely, to increase output, you have to pay the cost of inflation.
In addition, from a long-term perspective, since total supply is not affected by inflation, only inflation rises, and it cannot affect national income.
However, there is a limit to moving the aggregate supply.
This is because the increase in productivity or changes in trade union behavior cannot be addressed in a short period of time.
Therefore, we have no choice but to stabilize prices through fiscal policy and monetary policy of aggregate demand management policy.