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Wednesday, January 16, 2008

Explain the basic concepts of Macro Economics

Basic Concepts of Macro Economics:

Let us introduce ourselves with the basics concepts of Macro Economics, which are important in business management:

1. Stock and Flows:

Stock is always measured at a given point of time and flow is measured over a given period of time. Macro Stock Variables are inventory, capital stock, wealth, debits etc. Macro flow variables are National income and output, consumption, investment etc. Both stock and flow are expressed in money units. Stock may be expressed as just rupee but flows are expressed as rupees per month, rupees per year or in any time unit. The distinction between the stock and flow can be cleared with an example. Total money supply is stock but change in money supply is flow.

2. Capital and Investment:

Capital is always measured at a point of time, which investment is the change in the capital stock over a period of time. Many times investment and capital formation are used synonymously.

3. Ex-Post and Ex-ante:

These are Latin phrases, which means before hand and afterwards. Ex-ante means anything planned and intended. For Eg., Ex-ante saving is an amount that the people intend to save out of their income. Ex-post is realized saving, investment etc. For Eg. Ex-Post saving is the amount that the people actually save in that period.

4. Equilibrium:

Equilibrium is defined in economics as the position of rest or a state of balance or a state where there is no change required in a period of time. Equilibrium is absence of disequilibrium. Economics deals with variables, whose value changes over a period of time.

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