Introduction
Macroeconomics is the branch of economics that analyses the entire economy. It deals with the total employment, national income, national output, total investment, total consumption, total savings, general price level interest rates, inflation, trade cycles, business fluctuations, etc. Thus, it is the study of aggregates. By nature, it is both a positive and a normative science. In it lies both a theoretical and a policy science.
Macroeconomics emerged as a new branch of economics in 1936. Its foundation was laid down by J. M. Keynes in his book ‘The General Theory of Employment, Interest, and Money’ published in the same year. Many other developments were made in macroeconomics by other economists in the later years. Post-Keynesian developments in macroeconomics are classified as Monetarism, Supply-Side Macroeconomics, New Classical Macroeconomics, and New Keynesianism.
Scope of Macroeconomics
The study of Macroeconomics is the comprehensive study of the entire economy. The scope of macroeconomics is as follows:
Theory of Income and Employment
Theory of General Price Level and Inflation
Theory of Growth and Development
Macro Theory of Distribution
Importance of Macroeconomics
In the study of economics, macroeconomics has played a crucial role. It provides the framework for economic theory. It has theoretical as well as practical implications. Below is a list of some of its significant key points:
Functioning of an Economy: Macroeconomic analysis gives us an idea of the functioning of an economic system. It helps us to understand the behavior pattern of aggregative variables in a large and complex economic system.
Economic Fluctuations: Macroeconomics helps to analyze the causes of fluctuations in income, output, and employment, and attempts to control them or reduce their severity.
National Income: The study of macroeconomics has brought forward the immense importance of the study of national income and social accounts. Without a study of national income, it is not possible to formulate correct economic policies.
Economic Development: Advanced studies in macroeconomics help to understand the problems of developing nations such as poverty, inequalities of income and wealth, differences in the standard of living of the people, etc. It suggests important steps to achieve economic development.
Performance of an Economy: Macroeconomics helps us to analyze the performance of an economy. National Income (NI) estimates are used to measure the performance of an economy over time by comparing the production of goods and services in one period with that of the other period.
Study of Macroeconomic Variables: To understand the workings of the economy, the study of macroeconomic variables is important. Main economic problems are related to economic variables such as the behavior of total income, output, employment, and general price level in the economy.
Level of Employment: Macroeconomics helps to analyze the general level of employment and output in an economy.
