Introduction and Meaning of Macroeconomics

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Introduction and Meaning of Macroeconomics


Economics is the study of how individuals and societies choose to utilize scarce resources to satisfy unlimited human wants. Such scare resources compel us to make choice which is the source of all of the problems we study in economics. Households have limited incomes for satisfying their desired, so they must choose carefully how they allocate their spending among different goods and services. Business firms want to make the highest possible profit, but they must pay for their resources, so they carefully choose what to produce, how much to produce, and how to produce it. The government also works with limited budgets, so it must carefully choose which goals to pursue. In this way, economics studies these decisions made by households, firms and government to explain how our economic system operates, to forecast the future of our economy, and to suggest ways to make that future even better.

To the study of economics, scarcity and the manner in which individuals and society make choice are fundamental issues. To examine these important issues, modern economists have divided the whole economic theories into two parts: microeconomics and macroeconomics. And these words in economics were first used by Ragnar Frisch in 1933. The terms micro is derived from the Greek word ‘mikros’, which means “small”. Microeconomics, therefore, studies the economic behaviour of individual decision makers, such as a consumer, a worker, a firm, or a manager. It also analyzes the behaviour of individual households, industries, markets, labour unions, or trade associations. On the contrary, the term macro comes from Greek word ‘makros’, which means “large”. Macroeconomics, thus, analyzes how entire national economy performs. A course in macroeconomics would examine aggregate levels of income and employment, the levels of interest rates and prices, the rate of inflation, and the nature of business cycles in a national economy.

Meaning of macroeconomics

Macroeconomics is defined as the branch of economics which deals with economy as a whole. In other words, macroeconomics is the study of very latge, economy-wide aggregate variables like national income, money, price level, unemployment, economic growth rate, etc. therefore, it is also known as the aggregative economics.

In fact, macroeconomics is basically concerned with national aggregate or total values such as national income, aggregate consumption, aggregate saving, total investment, etc. that relates to the whole economy. It examines how general price level is determined and how resources are allocated at the level of the economic system as a whole. In short, macroeconomics is the study of economics system as a whole.

Macroeconomics deals not with individual quantities but with aggregate of these quantities, not with individual incomes but with national income, not with individual prices but with price level, not with individual output but with national output. K.E. Boulding

Macroeconomics is the study of the behaviour of the economy as a whole. It examines the overall level of national output, employment, prices, and foreign trade. P.A. Samuelson

Macroeconomics concerns the overall dimension of economic life. More specifically, macroeconomics concerns with such variables as the aggregate volume of an economy, with the extent to which its resources are employed, with the size of national income and with the general price level.   Grander Ackley

From the above definitions, it can be stated that macroeconomics is essentially study of the behaviour and performance of the economy as a whole. It studies relationship and interaction between forces that determine level and growth of national output and employment, price level and balance of payment position of an economy.

Since, macroeconomics splits up the economy into big lumps for the purpose of study; it is also called the “Method of Lumping”. It explains how the level of income and employment is determined and analyses the factors that bring about fluctuations in income and employment. It also explains how national income grows over time. Thus, macroeconomics deals with the phenomena  related to the level and growth of national income and employment and various factors governing their trends. Therefore, macroeconomics is also known as the “Theory of Income and Employment”.

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