Macroeconomics: Features, Scope, and Importance

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Macroeconomics: Features, Scope, and Importance

Macroeconomics: Features, Scope, and Importance

Features of Macroeconomics

The following are the main features of macroeconomics:

  • It is aggregative economics.
  • It is concerned with the behaviour of the economy as a whole.
  • It presupposes constant relative prices and given resource allocation.
  • It is a policy science and more normative.
  • Its analytical tools are fiscal policy (taxes, government expenditure and government borrowing) and monetary policy (interest rate and money supply).
  • It is also called income and employment theory.
  • Its objectives are to determine aggregate output, employment and general price level and their rate of change.
  • It is relatively new and developed after the publication of Keynesian General Theory in 1936 A.D.
  • Its principal or main variables are national income, total consumption, total expenditure, total saving, total investment, etc.

Scope of Macroeconomics

The area covered by macroeconomics is called the scope of macroeconomics. The scope of macroeconomics includes the aggregate or total economic activities of an economy. The scope of macroeconomics can be explained as follows: 

1. Theory of national income:

Macroeconomics studies the concept of national income, its different elements, methods of measurement and social accounting. Social accounting refers to the systematic record and presentation of national income data. 

2. Theory of employment:

Macroeconomics also studies problems relating to employment and unemployment. It studies different factors determining the level of employment such as effective demand, aggregate demand, aggregate supply, aggregate consumption, aggregate investment, aggregate saving, multiplier, etc. 

3. Theory of Money:

Changes in demand for and supply of money have a considerable effect on the level of employment. Macroeconomics, therefore, studies functions of money and theories relating to it. Banks and other financial institutions are also part of its study. 

4. Theory of general price level:

Determination of and changes in general price-level are also studies under macroeconomics. Problems concerning inflation or general rise prices and deflation or general fall in prices are also studied under macroeconomics. 

5. Theory of economic growth:

Study of problems relating to economic growth or increase in real per capita income forms a part of macroeconomics. It studies the economic growth of both developed and underdeveloped economies. Monetary and fiscal policies of the government are also studied therein. 

6. Theory of international trade:

Macroeconomics also studies trade among different countries. Theories of international trade, tariff and protection, etc. are subjects of great significance to macroeconomics. 

Uses or importance of macroeconomics

Macroeconomics is useful in several ways. Because it studies the problems of unemployment, inflation, economic instability and economic growth. And its major use or importance are discussed under the following headings: 

1. Helpful to understand the working of the economy:

Macroeconomics is indispensable for understanding the working of the country. It is concerned with the study of the economy in total or aggregate helping to understand how the macroeconomic variables behave in aggregate. Macroeconomic variables such as national income, aggregate output, gross saving and investment, national expenditure, etc. are very essential to understand the working of the economy. 

2. Helpful in formulating economic policies:

The macroeconomic analysis provides a sound basis for the formulation of the government’s economic policies. Such economic policies for the removal of poverty, unemployment and inflation must be based upon reliable statistics of the aggregate variables. And such aggregate variables are studied in macroeconomics. 

3. Helpful in controlling economic fluctuations:

Economic fluctuations like trade cycle, inflation, deflation, etc. need to be handled appropriately inappropriate period to correct them. To provide a finite direction to the economy, knowledge of macroeconomics is essential. 

4. Helpful in international comparisons:

Only macroeconomic variables like national income, total output, aggregate demand, consumer behaviour and investment patterns of different countries can be easily compared. Thus, macroeconomics provides the necessary information for international comparison. 

5. Evaluate the performance of the country:

Macroeconomics is very useful to evaluate the performance of the country. National income which is prime macroeconomic variable is the barometer that scales the growth of a country. It analyses the overall performance of the economy within a given period of time and allows us to compare that performance with the past. National income, basically, is an aggregate concept. 

6. To develop and expand the microeconomics:

Study of macroeconomics is essential for the development and expansion of macroeconomics. For examples, the theories of microeconomics such as the law of demand, the law of diminishing marginal utility, consumer’s surplus, etc. are based on a collection of experience of mass consumers. Likewise, macroeconomics is also useful to understand the behaviour of individual units. For examples, to understand the demand for a product, we need to understand the aggregate demand of the economy which is studied under macroeconomics. 

7. Helpful to understand international trade:

The entire world is engaged in international trade and macroeconomics helps to understand international trade structure of a country. Besides, macroeconomics also helps to analyze the benefit of international trade as well as designing an appropriate trade policy. 

8. Useful in business decisions making:

Macroeconomics is very useful in business decision making. The overall economic activity such as national income and employment, aggregate demand and supply conditions, fiscal and monetary policies of the government, rate of inflation, etc. affect business firms. These aggregate of the economy make up the overall business environment, which affects business decision making. The forecasting of future demand and investment decisions are also based on the situation of the economy and its growth process. 

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