What Is Macroeconomics?

Macroeconomics is the study of economic aggregates. Unlike microeconomics Opens in new window, which looks at the individual units that make up the economy Opens in new window,

Macroeconomics studies the economy as a whole, and looks at the various totals which are seen to somehow interact with each other.

In addition, macroeconomics examines changes in the national and international economy, analyzing patterns and trends and seeking explanations and theories for macroeconomic problems such as unemployment and inflation.

Macroeconomic issues include explaining why economies experience periods of contraction Opens in new window and increasing unemployment and why over the long run some economies have grown much faster than others Opens in new window.

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Macroeconomics examines economic growth.

Economic growth refers to the ability of the economy to produce quantities of goods and services.

Economic growth Opens in new window is important because an economy that grows too slowly fails to raise living standards.

In many countries in Africa very little economic growth has occurred in the past 60 years, and many people remain in extreme poverty.

Macroeconomics analyzes both what determines a country’s rate of economic growth and the reasons growth rates differ so greatly between countries. It also analyses consumer and investment behavior, the effect of government spending or international trade on an economy.

Macroeconomics also analyzes what determines the total level of employment and the unemployment rate in an economy Opens in new window.

The level of employment and the unemployment rates are affected significantly by the business cycle.

Business cycle refers to the alternating periods of expansion and contraction in economic activity relative to the trend in the economic growth rate that the economy experiences over time.

The contraction in economic activity Opens in new window may also lead to a fall in output and employment, which is referred to as a recession Opens in new window.

Other factors also help determine the level of employment in the long run. A related issue is why some economies are more successful than others in maintaining high levels of employment over time.

Another important macroeconomic issue is what determines the inflation rate—the percentage increase in the general level of prices from one year to the next. As with employment, inflation is affected both by the business cycle Opens in new window and by other long-run factors Opens in new window.

Finally, macroeconomics is concerned with the linkages between economies throughout the world. These linkages involve international trade and international finance.

Macroeconomic analysis provides information that consumers and firms need in order to understand current economic conditions and to help predict future conditions.

A family may be reluctant to buy a house if employment in the economy is declining because some family members may be at risk of losing their jobs. Similarly, firms may be reluctant to invest in building new factories or to undertake major new expenditures on information technology if they expect future sales to be weak.

Macroeconomic analysis can also aid the federal government in designing policies that help the economy perform more efficiently.

From these important macroeconomic issues we can summarize four main policy objectives of macroeconomic policy:

  1. A stable and strong rate of economic growth
  2. Low unemployment
  3. Stable and low inflation
  4. A manageable balance in overseas trade and finance

Macroeconomics also involves policy issues, such as whether government intervention is capable of reducing the severity of economic contractions.

It takes the entire economy looked at as a whole, as its province for study but often without sufficient regard for its individual constituent units.

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