The Meaning and Importance of Macroeconomics

Helna is a postgraduate in commerce who is working as a manager. She loves sharing informative information with her readers.

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 thought. 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 the 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 forests 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 includes the following theories:

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

The studies of problems of balance of payment, unemployment and general price level are 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 the macro level only (in other words, at the level of the whole economy).
• With a detailed knowledge of the functioning of an economy at a 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

Matern on July 02, 2020:

very nice short but very clear keep it up

Rashid on June 17, 2020:

What is a national income figure?

Ndekhedehe Divine on April 23, 2020:

Very correct and accurate. Thanks for the information.

Gideon Haruna on January 30, 2020:

very good ideas

Krishi dugar on January 29, 2020:

Thank you for such good answers.....

Ayman on January 20, 2020:

Absolutely parfect thank 2

mach

Bakoyogo Charles b on November 13, 2019:

All are the best answers

Bishal Baral on November 09, 2019:

thanks for information ..

Berhanu utura on September 27, 2019:

It is very best difinition.

Antoine on June 23, 2019:

Thanks you very much about this information.

Shikha on April 25, 2019:

Thank you so much for providing such information .

A on April 21, 2019:

Waste of time

Sneha on April 14, 2019:

Thank you so much for such a nice explaination

Mubarak Sani Bala on April 13, 2019:

This is nice job Helna, we really appreciate it so thanks a lot

dereje on April 10, 2019:

it is good as well as it is pure information and knowledge

OUMA BRIAN on April 02, 2019:

Thanks for the information. Keep on reminding us to enhance our knowledge.

Ravi on March 18, 2019:

Its useful

naresh on March 03, 2019:

why aishwarya ray profile pic..hahaha...

Albert on February 19, 2019:

Your explanations are good, brief and easy to understand.

Keep it up. I wish l have one on one lectures with you.

Helna (author) on January 15, 2019:

It helps to solve economic problems like poverty, unemployment, inflation, deflation etc., whose solution is possible at macro level only

Helna (author) on December 13, 2018:

Thank you, Kelli, for your visit and comment. Most of the time comments will encourage me to write more.

Thanks once again for your visit and comment.

Kelil on December 09, 2018:

Thank you very much .it's easy and simple to understand.

Keep it up to guide us continuously just like. ..

grace on November 11, 2018:

thanks a lot its easier to understand

Shalini on November 11, 2018:

Good

Ankit on October 11, 2018:

Thank for my daut clear

Kasanga Gordwin. on August 27, 2018:

It's meaningful, Thanks .

Bonie on August 22, 2018:

Very good and well articulated information. Thankyou.

Omkar kashinath varude on July 30, 2018:

Good and detailed information

Sami kng on July 23, 2018:

Good detailed information

goody on May 30, 2018:

Tnx for the info.

florence on May 18, 2018:

useful information, thanks

Priya on May 08, 2018:

It was very useful

alex on May 02, 2018:

you are the best.

Kaylyn on April 18, 2018:

A very useful piece of information. Thank you

sammy juma on March 19, 2018:

understandable thank u

AUWAL PAKI on March 02, 2018:

Bravo

Jackie on February 25, 2018:

Thanks for the explanation and simlicity

Habida on February 21, 2018:

Thanks easy to understand

PRATAP KUMBHAR on February 05, 2018:

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

Cornelia on January 11, 2018:

It is easy to understand. God bless you!

Cornelia on January 11, 2018:

Thank for all information, I was really need it

Simran jeet kaur on December 11, 2017:

Easy for understanding

Nitin on December 06, 2017:

Nice explaination

nishat tasnim on November 25, 2017:

nice explanation

Gopal Bhople on November 14, 2017:

nice information

ajay on November 02, 2017:

tanxx

mary on October 28, 2017:

understand you than my university lecturer

Tay on October 24, 2017:

Was very useful!

Julia on October 07, 2017:

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

ankit gupta on October 05, 2017:

Thanx giving and nice for same subject studies.

Srilekha on September 07, 2017:

Its really very helpful

Madhuranga on April 30, 2017:

Thank u very much

Ajabnoor on December 04, 2016:

thank you so from your information i hope to go ahead

Daniel on November 27, 2016:

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

Oprah Kolee on November 23, 2016:

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

Ebis on November 22, 2016:

Nice piece with precise and comprehensive information. Well done.

Roomi on November 21, 2016:

Nice....

lawrence on June 07, 2016:

thanks for the wonderfull explanation

morembwa on March 21, 2016:

Thanks alot

nitish on February 16, 2016:

Thanxx alott

stephen ANU on February 12, 2016:

Really helpful.I'm using it for my assignment

joseph on February 10, 2016:

thenks

umar sani nabujawa on January 25, 2016:

thanks for providing this material

urooj malik on November 02, 2015:

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

ajit Gajdhane on October 30, 2015:

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

Sexy mama on October 14, 2015:

This was kinda helpful, well done!

lydiah on October 13, 2015:

ahsanteni....i hope for more

jhnson on October 12, 2015:

Thanx for these enriching article wish u add more.

charity on September 08, 2015:

thanks daz all I need for my assignment

manju on September 06, 2015:

Because it help me in project...

manju on September 06, 2015:

Very nice topic it is thanks give in detail..

prakash on August 04, 2015:

what is theorotical and practical importance of economics

Kadani on July 29, 2015:

just what i needed thanks alot

JOSEPH MUTHAMIA on July 03, 2015:

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

ugoeze juliet on June 30, 2015:

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

musa mohd on June 23, 2015:

tanks for sharing our knwlge wit us its a comprehensive material

preeti on May 17, 2015:

Thanks a lot i need for my assigement

Damaris on May 16, 2015:

am grateful its exact what i need in my assignment

kerlepcorban on May 14, 2015:

tanx a lot just what i needed for my assignment

Chinonye C.I. on May 13, 2015:

Nice and enriching

Pelumi on May 11, 2015:

Bravo Tank U

mukhtiar ali shaikh on April 28, 2015:

Thanks to give us lot of knowledge about the economics

Elly Ngowi on April 13, 2015:

thax a lot

Lyndah on March 25, 2015:

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

philip on March 08, 2015:

its more helpful

chanchal on January 04, 2015:

thank you

Varsani vijya on December 20, 2014:

Scope of macro economic

hemal on October 07, 2014:

Most boring chapter in hsc

Minal on September 21, 2014:

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

ma on January 29, 2014:

Thanks for providing wonderful material

michael silas on December 12, 2013:

Thanks for providing nice materials