Economics

Topics: Economics, Keynesian economics, Macroeconomics Pages: 63 (16177 words) Published: November 5, 2013
MACRO ECONOMICS

INTRODUCTION

Meaning of Macroeconomics
Traditionally the study of economics is divided into two main branches i.e. 1. Macroeconomics
2. Microeconomics
Until the 1930s there was little need to distinguish between the two branches. Economists concentrated their attention almost exclusively on what is now traditionally known as microeconomics. Macroeconomics was clearly the junior partner. However, a new interest in macroeconomics arose in 1936 when John Maynard Keynes published his popular work; “The General Theory of Employment, Interest and Money”, with the interest aroused by the ideas contained in Keynes books, economists relative neglect of macroeconomics ended.

Definition:
The word macro has a Greek origin meaning large. Macroeconomics is therefore concerned with the behavior of the economy as a whole i.e. with booms and recessions, the economy’s total output of goods and services and the growth of output, the rate of inflation and unemployment, balance of payment, exchange rates, national debts etc.

Other Definitions:-
3. R.G.D Alien, “the term macroeconomics applies to the study of relations between broad economic aggregates” 4. J. M. Culbertion, “Macroeconomic theory is the theory of income, employment, prices and money” 5. K. E. Building, “Macroeconomics is that part of economics that studies the overall averages and aggregates of the system” 6. G. Ackley, “Macroeconomics is the study of forces of factors that determine the level of aggregate production, employment and prices in an economy and their rates or change over time. Although they differ somewhat in emphasis, all these definitions and others emphasize that, macroeconomics deals with the functioning of the economy as a whole including how the economy’s total output of goods and services, the price level of goods and services, the causes of these magnitudes to fluctuate.

Relationship between Macro & Microeconomics
“Macroeconomics studies the forest while microeconomics studies the individual species of trees. Macroeconomics tends to deal with the truly big issues of economic life, such as national income and output, employment and unemployment, national debt etc. It also concerns itself with the problems of the day afflicting economic systems eg inflation and employment. Macroeconomics is closely related to the economic problems of the day. It does not yield its greatest rewards to those whose primary interest is theoretical.

Microeconomics on the other hand, is concerned not with total output, total employment or total spending, but with the output of particular goods and services by single firms or industries and the particular spending of goods and services by individual house holds. In its approach, microeconomics essentially assumes the importance of full employment. It also assumes as given the total output, total employment and total spending of all goods and services. It then proceeds to examine how output and employment are allocated among various individuals.

What microeconomics takes as given eg total output for the economy as a whole, macroeconomics take as the prime variable whose size and value is to be determined. Conversely, what macroeconomics takes as given eg individual consumption, performance of a given firm, are prime variables in microeconomics.

In strict sense however, there is only one economics. Macroeconomic theory has a foundation in microeconomic theory and in practice the analysis of the economy is not conducted separately in two water tight compartments. As we analyze changes in microeconomic variables and this may in turn affect the macroeconomic variables and vis-à-vis.

Importance of Macroeconomic Analysis
(i) It gives a birds eye views of the performance of the economy (ii) It aids in understanding a complicated economic growth
(iii) It helps in studying the economy in its dynamic aspect (iv) It helps in understanding myriads or economic problems eg inflation,...
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