Meaning of Macroeconomics

Macroeconomics is another important segment of economics. As the term implies, macroeconomics looks at the overall, big-picture scenario of the economy. It is the branch of economics that studies how an overall economy—the market or other systems that operate on a large scale behaves. Macroeconomics studies economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP) and changes in unemployment.

Macroeconomics deals with the performance, structure and behavior of the entire economy, in contrast to microeconomics, which is more focused on the choices made by individual actors in the economy (Like people, households, industries etc.). Macroeconomics focuses on the way the economy performs as a whole and then analyzes how different sectors of the economy relate to one another to understand how the aggregate functions. There are different macroeconomic models Whose forecasts are used by government entities to aid in the construction and evaluation of economic, monetary and fiscal policy; by businesses to set strategies in domestic and global markets and by investors to predict and plan for movements in various asset classes.

Key Definitions

Defined By	Definition
K.E. Boulding	“Macroeconomics deals not with individual quantities but with an aggregate of these quantities, not with individual incomes but with national income, not with individual price but with price level, not with individual output but with national output”
P.A. Samuelson	“Macroeconomics is the study of the behavior of the economy as a whole. It examines the overall level of national output, employment, price and foreign trade”
Grander Ackley	“Macroeconomics concerns the overall dimension of economic life. More specifically, macroeconomics concerns with such variables as an aggregate volume of an economy, with the extent to which its resources are employed, with a size of national income with the general price level”

From the above discussion and definitions, macroeconomics should be understood as the branch of economics dealing with the aggregate economy and its phenomenon. It focuses on the structure, performance, behavior and decision-making of the economy as a whole. It is determining the economic equilibrium with long-term objectives of sustained economic growth and stability of the economy through fiscal and monetary stimulus.

Features of Macroeconomics

The main features of macroeconomics are listed below:

• It is the study of the aggregate economy
• It presupposes constant relative price and given resource allocation
• It is dependent on fiscal policy (Government spending, Taxation and Government Borrowing) and monetary policy (Money supply and Interest rate)
• It is concerned with the study of wholistic behavior of the economy
• It is more normative and a policy science
• It is also known as Income and Employment Theory
• Its main variables are national income, total consumption, total expenditure, total saving and total investment
• It aims for determining aggregate output, employment and general price level and their respective rate of change

Scope of Macroeconomics

The area of concern of macroeconomics is different from microeconomics. It looks for an aggregate and wholistic aspect of the economy. The scope of macroeconomics are as follows:

1. Theory of National Income: Macroeconomics studies national income and its concerned aspects. Theory of national income includes the national income concepts, measurement and accounting, calculation methods, assumptions, difficulties of calculation etc.
2. Theory of Money: Money is regarded as the circulating blood of any economy. Its demand for and supply of aspects have a huge impact on the stability and sustainability of the economy. Thus, macroeconomics studies the functions, theories, demand and supply, banks and financial institutions etc. concerned with the money itself.
3. Theory of Economic Growth: Economic growth refers to expansion in GDP and increase in per capita income. Both emerging and advanced economies aim for economic growth. Thus, macroeconomics studies factors causing and not causing the economic growth of a country. This includes studying the fiscal policy and monetary policy of the country therein.
4. Theory of General Price Level: To determine and identify the change in the general price level is also the subject of study of macroeconomics. Problems concerning inflation or a general rise in price and deflation or general fall in prices are also studied under macroeconomics.
5. Theory of International Trade: Macroeconomics studies trade between two countries and the trade status. Such studies also include theories of international trade, tariffs and protection.
6. Theory of Employment: Employment and unemployment of any economy is a key subject matter of macroeconomics. Under a theory of employment, macroeconomics studies the problems and causes of employment or unemployment. It covers the study of effective demand, aggregate demand, aggregate supply, aggregate consumption and aggregate investment including multipliers.

Importance/Significance of Macroeconomics

Macroeconomics is an important part of economics dealing with the study of the economy as a whole. It studies the macroeconomic indicators such as national income, unemployment, inflation, economic growth, economic stability and sustainability. The importance of macroeconomics are as follows:

1. It helps to understand the working of the economy in total as well as its different variables and the way they behave
2. Economic fluctuations such as inflation, trade cycle, deflation etc. can be controlled with the help of theories and measures suggested by macroeconomics
3. Macroeconomics analysis provides a sound basis for the formulation of government economic policies for poverty, unemployment and inflation
4. Macroeconomic indicators help compare the economic status of different countries of the world
5. Evaluates performance of the economy with the help of parameters such as national income and per capita income
6. Macroeconomics helps to understand the international trade structure, status, favorability or unfavorability etc. of a country
7. Different macroeconomic indicators are the part of the business environment that influence the business decision making of any business
8. It plays a key role in the development and expansion of microeconomics

Limitations of Macroeconomics

It is necessary to understand that just like any other segment of economics, macroeconomics is also not free from limitations. Some of the key limitations of macroeconomics have been presented below:

1. Considers Aggregates as Homogenous: The individual data may not be similar in structure or composition. Thus, when such single figures are compiled to get an aggregate value, it may not seem to be that useful.
2. Conceptual and Statistical Complexities: When the individual data have different units, its aggregation becomes arduous and holds no significance.
3. Unnecessary Aggregate Variables: When the individual elements need to be examined separately, the aggregate values cannot be used for the purpose.
4. Neglects Individual Consumers: The concept of macroeconomics overlooks the importance of the individual unit or consumer since the fundamental is to make use of the aggregates.
5. Misleading: The extensive application of the macroeconomics measures seems to be irrelevant when aimed at 100% results.
6. The fallacy of Deductive Inferences: Macroeconomics function on aggregate values. But, the interpretation of the individual activities may not be the same as compared to the conclusion drawn on a mass level.
7. Too Much Generalization: The conclusion derived from the aggregation of the data, is generally taken to be true for all individuals.

Difference Between Microeconomics and Macroeconomics

Basis	Microeconomics	Macroeconomics
Focus	It focuses on the study of a particular market segment.	It focuses on the total economy which consists of several market segments.
Economic Variables	It studies individual economic units.	It studies aggregate economic variables.
Applicability	It applies to internal or operational issues.	It applies to external environmental issues.
Subjects Covered	It covers individual products, firms, households, industry, wages and price.	It covers topics like national income, national output, price level etc.
Issues Dealt	It deals with the issues such as the price of a commodity affecting its quantity demanded and quantity supplied.	It deals with major economic issues such as poverty, unemployment, monetary policy, fiscal policy etc.
Price Determination	Microeconomics determines the price of a specific commodity, its substitute and complementary goods.	It is crucial in maintaining the general price level, avoiding the situation of inflation or deflation.
Approach	It is a bottom-up approach to economics	It is a top-down approach to economics.