The Meaning and Importance of Macroeconomics

Updated on November 12, 2014

Economics: The Basics

There are two major branches of economics:

  • Microeconomics
  • Macroeconomics

In short, microeconomics is the study of individual economic units of the economy, while macroeconomics is the study of the economy as a whole and its totality. There are two main schools of economic thoughts. These schools are 1. Classical economics or 2. Keynesian economics.

Macroeconomics before Keynes is sometimes called “classical” economics. According to classical economics:

  1. An economy as a whole always functions at a level of full employment, due to free play of market forces in a free economy.

  2. Supply creates its own demand.

This classical doctrine of automatic full employment was largely accepted until the early 1930s, when the Great Depression Occurred. The Great Depression of 1929-1933 exploded the myth that an automatic working of market mechanisms would ensure an equilibrium level of income consistent with full employment of resources. There was a persistent fall in the level of output, income, and employment during the Great Depression, even though the United States and other western countries were highly industrialised, with well-developed basic industries, electric power, means of transport and communication, banks, and other financial institutions. The Classicals failed to explain this situation during The Great Depression.

The Birth of Macroeconomics

In 1936, well-known British economist J. M. Keynes introduced his own theory and wrote his famous book The General Theory of Employment, Interest and Money, which birthed the Keynesian revolution, the second primary school of economic thought. Keynes criticised the Classical assumption of full employment and developed modern macroeconomics: economic theory that attempts to connect money supply, employment, business cycles, and government policy.

The incentive for development of modern macroeconomics came from the Great Depression of the early 1930s. Macroeconomics addresses

  • the desire to control business cycles in advancing economies and
  • the need to develop backward economies.

The Meaning of Macroeconomics

Macroeconomics is the study of the aggregates and averages of the entire economy. It's the part of economic theory which studies the economy in its totality or as a whole.

In microeconomics, we study the individual economic units like a household, a firm, or an industry. However, in macroeconomics we study the whole economic system like national income, total savings and investment, total employment, total demand, total supply, general price level. We study how these aggregates and averages of economy as a whole are determined and what causes fluctuations in them. The aim of the study is to understand the reason for the fluctuations and to ensure the maximum level of employment and income in a country.

In other words: Microeconomics is the study of individual trees, whereas macroeconomics is the study of forest as a whole.

Macroeconomics is also known as the theory of income and employment, since the subject matter of macroeconomics revolves around determination of the level of employment and income.

At the time of the Great Depression, government participation through monetary and fiscal measures in the economy increased considerably. Since the study of millions of individual economic units is almost impossible, macroeconomics provided tools for the assessment of economic policy. Macro policies make it possible to control inflation and deflation, and moderate violent booms and recessions.

The main functions of macroeconomics are the collection, organising, and analysis of data; determining national income; and formulating appropriate economic policies to maintain economic growth and full employment in a developing country.

The scope of macroeconomics include the following theories:

  • National income
  • Money
  • Economic growth
  • Employment
  • Price levels

The studies of problem of balance of payment, unemployment, general price level are the parts of macroeconomics, as these relate to the economy as a whole.

The Importance of Macroeconomics

Why is macroeconomics important? Here are a few crucial reasons:

  • It helps us understand the functioning of a complicated modern economic system. It describes how the economy as a whole functions and how the level of national income and employment is determined on the basis of aggregate demand and aggregate supply.
  • It helps to achieve the goal of economic growth, a higher GDP level, and higher level of employment. It analyses the forces which determine economic growth of a country and explains how to reach the highest state of economic growth and sustain it.

  • It helps to bring stability in price level and analyses fluctuations in business activities. It suggests policy measures to control inflation and deflation.

  • It explains factors which determine balance of payments. At the same time, it identifies causes of deficit in balance of payments and suggests remedial measures.

  • It helps to solve economic problems like poverty, unemployment, inflation, deflation etc., whose solution is possible at macro level only (in other words, at the level of the whole economy).

  • With a detailed knowledge of the functioning of an economy at macro level, it has been possible to formulate correct economic policies and also coordinate international economic policies.

  • Last but not least, macroeconomic theory has saved us from the dangers of application of microeconomic theory to the problems that require us to look at the economy as a whole.

Comments

    0 of 8192 characters used
    Post Comment

    • profile image

      Kasanga Gordwin. 

      3 weeks ago

      It's meaningful, Thanks .

    • profile image

      Bonie 

      4 weeks ago

      Very good and well articulated information. Thankyou.

    • profile image

      Omkar kashinath varude 

      7 weeks ago

      Good and detailed information

    • profile image

      Sami kng 

      8 weeks ago

      Good detailed information

    • profile image

      goody 

      3 months ago

      Tnx for the info.

    • profile image

      florence 

      4 months ago

      useful information, thanks

    • profile image

      Priya 

      4 months ago

      It was very useful

    • profile image

      alex 

      4 months ago

      you are the best.

    • profile image

      Kaylyn 

      5 months ago

      A very useful piece of information. Thank you

    • profile image

      sammy juma 

      6 months ago

      understandable thank u

    • profile image

      AUWAL PAKI 

      6 months ago

      Bravo

    • profile image

      Jackie 

      6 months ago

      Thanks for the explanation and simlicity

    • profile image

      Habida 

      7 months ago

      Thanks easy to understand

    • profile image

      PRATAP KUMBHAR 

      7 months ago

      it is very important in daily life and to develop the economics system

    • profile image

      Cornelia 

      8 months ago

      It is easy to understand. God bless you!

    • profile image

      Cornelia 

      8 months ago

      Thank for all information, I was really need it

    • profile image

      Simran jeet kaur 

      9 months ago

      Easy for understanding

    • profile image

      Nitin 

      9 months ago

      Nice explaination

    • profile image

      nishat tasnim 

      9 months ago

      nice explanation

    • profile image

      Gopal Bhople 

      10 months ago

      nice information

    • profile image

      ajay 

      10 months ago

      tanxx

    • profile image

      mary 

      10 months ago

      understand you than my university lecturer

    • profile image

      Tay 

      11 months ago

      Was very useful!

    • profile image

      Julia 

      11 months ago

      Thank you give me the tools to understand better the subject.

    • profile image

      ankit gupta 

      11 months ago

      Thanx giving and nice for same subject studies.

    • profile image

      Srilekha 

      12 months ago

      Its really very helpful

    • profile image

      Madhuranga 

      16 months ago

      Thank u very much

    • profile image

      Ajabnoor 

      21 months ago

      thank you so from your information i hope to go ahead

    • profile image

      Daniel 

      22 months ago

      Thanks a lot for providing this helpful material. I really appreciate your effort. Keep up the good work

    • profile image

      Oprah Kolee 

      22 months ago

      Thanks so much,exactly what I need for my assignment.

    • profile image

      Ebis 

      22 months ago

      Nice piece with precise and comprehensive information. Well done.

    • profile image

      Roomi 

      22 months ago

      Nice....

    • profile image

      lawrence 

      2 years ago

      thanks for the wonderfull explanation

    • profile image

      morembwa 

      2 years ago

      Thanks alot

    • profile image

      nitish 

      2 years ago

      Thanxx alott

    • profile image

      stephen ANU 

      2 years ago

      Really helpful.I'm using it for my assignment

    • profile image

      joseph 

      2 years ago

      thenks

    • profile image

      umar sani nabujawa 

      2 years ago

      thanks for providing this material

    • profile image

      urooj malik 

      2 years ago

      Thanks 4 giving us a correct guide line.......... please tel us about micro economic as well. Thanks

    • profile image

      ajit Gajdhane 

      2 years ago

      Its very useful to current situation...... Thanks!!

    • profile image

      Sexy mama 

      2 years ago

      This was kinda helpful, well done!

    • profile image

      lydiah 

      2 years ago

      ahsanteni....i hope for more

    • profile image

      jhnson 

      2 years ago

      Thanx for these enriching article wish u add more.

    • profile image

      charity 

      3 years ago

      thanks daz all I need for my assignment

    • profile image

      manju 

      3 years ago

      Because it help me in project...

    • profile image

      manju 

      3 years ago

      Very nice topic it is thanks give in detail..

    • profile image

      prakash 

      3 years ago

      what is theorotical and practical importance of economics

    • profile image

      Kadani 

      3 years ago

      just what i needed thanks alot

    • profile image

      JOSEPH MUTHAMIA 

      3 years ago

      THANKS FOR SHARING WITH ME THE KNOWLEDGE IN IMPORTANT CONCEPT OF MACROECONOMICS

    • profile image

      ugoeze juliet 

      3 years ago

      I am an Economics student in madonna university love dis, tnx for sharing

    • profile image

      musa mohd 

      3 years ago

      tanks for sharing our knwlge wit us its a comprehensive material

    • profile image

      preeti 

      3 years ago

      Thanks a lot i need for my assigement

    • profile image

      Damaris 

      3 years ago

      am grateful its exact what i need in my assignment

    • profile image

      kerlepcorban 

      3 years ago

      tanx a lot just what i needed for my assignment

    • profile image

      Chinonye C.I. 

      3 years ago

      Nice and enriching

    • profile image

      Pelumi 

      3 years ago

      Bravo Tank U

    • profile image

      mukhtiar ali shaikh 

      3 years ago

      Thanks to give us lot of knowledge about the economics

    • profile image

      Elly Ngowi 

      3 years ago

      thax a lot

    • profile image

      Lyndah 

      3 years ago

      thanks a lot.... am a genius no. ...

    • profile image

      philip 

      3 years ago

      its more helpful

    • profile image

      chanchal 

      3 years ago

      thank you

    • profile image

      Varsani vijya 

      3 years ago

      Scope of macro economic

    • profile image

      hemal 

      3 years ago

      Most boring chapter in hsc

    • profile image

      Minal 

      4 years ago

      Thnk u shooo much..... For giving us such a nyc n important material on macroeconomies.....

    • profile image

      ma 

      4 years ago

      Thanks for providing wonderful material

    • profile image

      michael silas 

      4 years ago

      Thanks for providing nice materials

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, owlcation.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://owlcation.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)