Skip to main content

Macroeconomics

Macroeconomics is the branch of economics that studies how the aggregate economy behaves. It focuses on aggregate expenditure and consumption of a nation or region. The amount saved and spent by all households, the productiveness of the country's labour force, and how actions of the government and central bank stimulate the overall economy.
Common Macroeconomic measurements include GDP (the total amount of goods produced by an economy), Unemployment (the % of people in the economy that are not working) and inflation (the rate at which the prices are increasing).
Macroeconomists develop models to explain the relationship between a variety of factors such as consumption, inflation, savings, investments, international trade and finance, national income and output to the overall economy, and at what magnitude each factor can affect the economic environment as a whole.
They study the aggregated indicators of unemployment rates, GDP and price indices, and then analyse how different sectors of economy relates to one another to understand how the economy functions.
Macroeconomics is important for governments and regulators to determine, the monetary policies and fiscal policies that are needed in order to obtain a stable growth and price stability in an economy.
It is also important for investors to have the ability to examine a country's current and future economic environment, since this will allow them to pinpoint assets and securities that may benefit or be harmed by economic variables.
Macroeconomics focuses on the variables, such as government spending, inflation, employment rates, consumption, all of which can affect the health of various industries, companies and securities.
Hence macroeconomics in its most basic sense, is the branch of economics that deals with the structure, performance, behaviour, and decision making of the whole, or aggregate economy, instead of focusing on individual markets. 

Popular posts from this blog

The Intuitive Lowest Cost Method

The Intuitive Lowest Cost Method Or The Minimum Cell Cost Method

The Intuitive Lowest Cost Method is a cost based approach to finding an initial solution to a transportation problem.
It makes allocations starting with the lowest shipping costs and moving in ascending order to satisfy the demands and supplies of all sources and destinations.

This straightforward approach uses the following steps.
Identify the cell with the lowest cost.Allocate as many units as possible to that cell without exceeding the supply or demand.Then cross out the row or column or both that is exhausted by the above assignment.Move on to the next lowest cost cell and allocate the remaining units.Repeat the above steps as long as all the demands and supplies are not satisfied. 
When we use the Intuitive Approach to the Bengal Plumbing problem, we obtain the solution as below.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A Rs.50
Rs.40 100 Rs.30 100 Plant…

Vogel's Approximation Method (VAM)

The Vogel's Approximation Method

In addition to the North West Corner and Intuitive Lowest Cost Methods for setting an initial solution to transportation problems, we can use another important technique - Vogel's Approximation Method (VAM).
Though VAM is not quite as simple as Northwest Corner approach, but it facilitates a very good initial solution, one that is often the optimal solution.
Vogel's Approximation Method tackles the problem of finding a good initial solution by taking into account the costs associated with each alternative route, which is something that Northwest Corner Rule did not do.

To apply VAM, we must first compute for each row and column the penalty faced if the second best route is selected instead of the least cost route.

To illustrate the same, we will look at the Bengal Plumbing transportation problem.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A
Rs.50
Rs.40
Rs.30 100 Plant B
Rs.80
Rs.

Modified Distribution (MODI) Method

Modified Distribution (MODI) Method

The MODI method is another way of evaluating the initial solution of a transportation problem and finding a more optimal solution with much less iterations compared to the Stepping Stones method.

It allows us to compute improvement indices much quickly for each unused square without drawing all of the closed paths.
MODI provides new means of finding the unused route with the largest negative improvement index. Once the largest index is identified, we are required to trace only one closed path. We can then decide the maximum number of units that can be shipped along that unused route.

We begin with an initial solution obtained by the Northwest Corner Rule.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A 100 Rs.50
Rs.40