Macroeconomics

Macroeconomics can be defined as a branch of economics that is concerned with the economy on a large scale, like markets, governments, and not individual firms or businesses. The term ‘Macro’ is derived from the Greek word 'Makros' meaning large. It deals with the bigger picture by analyzing the entire economy. Macroeconomics is also called ‘the study of aggregates' as it takes into account aggregate demand and aggregate supply when dealing with issues such as unemployment and poverty.

John Maynard Keynes, a British economist (1883-1946), widely known for the Keynesian Theory, a macroeconomic theory developed during the 1930s to understand the Great Depression, is considered to be the father of modern macroeconomics, for his study of the economy and market behavior. Keynes pioneered the use of national economic statistics and called for governments to hire jobless workers directly for public works like roads, dams, and schools.

The main objectives of macroeconomics involve:

1. maximizing the standard of living and achieving stable economic growth, and
2. minimizing unemployment, increasing productivity, controlling inflation, and more.
3. Determination of the overall level of output and employment is the central issue in macroeconomics.

Macroeconomics is extremely important to evaluate the overall performance of the economy in terms of national income and is also used to forecast economic conditions to help consumers, businesses, and governments on a large scale. The method of study in macroeconomics is often described as “general equilibrium analysis”.?

There are several important aspects of macroeconomics:

1. National Income - Macroeconomics is also known as “income theory.” As a whole economic system, every nation has an aim to increase their national income. When national income rises (considering other factors, such as population being constant), the per capita income would increase, providing more purchasing power and a higher standard of living, which ultimately benefits the welfare of the country.
2. Total Employment - If there is an increase in employment, there would be a higher number of people with jobs, who now have purchasing power, creating a higher demand and a better lifestyle, thus generating more GDP due to more expenditure.
3. Inflation - Inflation in macroeconomics refers to a generalized increase in the prices of goods and services in an economy. In a simpler sense, it would be a rise in the cost of living that decreases the purchasing power of people, reflected in a general increase in the prices of goods and services.?

Significance of Macroeconomics:

• Roadmap of Growth and Development- it is every nation’s objective to reach a stage wherein there is no dearth of wealth and welfare. Macroeconomics helps provide insight in order to accomplish this goal since it provides a fuller perspective on a country’s economy.
• Economic Stability- to improve a country’s economic state, the first step would be to figure out where the issues lie and create policies to correct the same. There are two broad types of policies- monetary policy (relating to money supply) and fiscal policy (relating to expenditure and income). Macroeconomics brings forth a bird’s eye view of the country’s economy, assisting us to enhance economic stability.
• Balance of Payments- Macroeconomics allows for an outlook on the country’s exports and imports. Higher exports and lower imports, ascertain the fact that the country is able to produce for itself and sell its goods to foreign countries, thus increasing the GDP. It is a far more favorable situation than a country that requires more imports, meaning it cannot support itself with its national production.

Thus, Macroeconomics is a vital aspect of a country’s economy, providing an aerial perspective and aiding governments formulate necessary policies for improving the standard of living of their people and achieving a higher state of welfare for the nation.