MacroEconomics
April 8, 2009
This is a branch of economics which considers the performance of economy as a whole. It is concerned with aggregates like national income, national consumption and investment. It studies the national economy and determines the national income. It involves the study of behavior and decision making of entire economies. GDPs, unemployment rates and price indices are studied by macroeconomists in order to understand the functioning of the economy.
We see a lot of macroeconomics related topic spoken in out day- to- day lives. Some of the topics generally heard are economic growth, inflation, increase and decrease in employment and unemployment, trade with other countries, government policies, etc. Macroeconomics is a very broad field that studies the causes and the results of fluctuations in the economy and also studies the things that will determined the economic growth in the long run.
Development of various models:
Macroeconomics determines and studies the total goods and services produced, total income, employment and price stability in the country. Various macroeconomic models are used by economists to study the economy. Among the classical economists, quantity theory of money was the most accepted model. This theory was questioned during the Great Depression around 1930. After the Great Depression, economists saw a need for developing the concept of national income and product statistics. It is after this that national accounts that we see today were developed.
Since the Great Depression, the ideas of a British economist, John Maynard Keynes were very influential and hence it is also called Keynesianism. After this many economists have come forward with various national and global economic models.
Different approaches to economics:
Now there are two different approaches to economics, one being the Keynesian another being the Neoclassical. The first theory was heavily influenced by the economist, Keynes and the second evolved when economists were challenged to base their macroeconomics in the microeconomics.
Keynesian approach focuses on the demand and links it with the unemployment and periodic changes in business. It says that the fluctuations in demand should be countered by fiscal policies or monetary policies.
In the economics after Keynes, stress is laid on the importance of demand in the short run as well as the long run. In addition to this the importance of liquidity, uncertainty, etc is also dealt with.
The neoclassical tradition evolved around the 1970s and focuses mainly on monetary policy like interest rates and money supply. Choices are made by considering time and uncertainty. This approach rejects the fiscal policy and says that inflations are clearly a monetary phenomenon. Most schools stress on one or the other approach as the foundation. But one theory cannot be completely exclusive of the other.
Macroeconomics is a continuously evolving area. Its policies are adopted by governments to avoid any major economic shocks. They make changes in policies in order to stabilize economies whenever there is a risk of the economy going down. The main aim is to see the economy growing and to do the necessary changes to ensure this.
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