Define Macroeconomics. Why macroeconomics is becoming more popular in recent times?
An economic
Problem can be studied either via micro or macro analysis. These two approaches
have now become much popular. It has become difficult these days to talk about
economic theory without using these two terms.[1]
MEANING AND
DEFINITION OF MACROECONOMICS
The word
macroeconomics is derived from Greek word ‘makros’, which means large. Modern
economics is largely macro in nature and has become popular. Macroeconomics may
be defined as that branch of economic analysis which studies the behaviour of
not one particular unit but the universe of units. It is the study of the
economy as a whole e.g. the productive capacity of the economy, total
consumption, total saving and investment.
Boulding Says, “Macroeconomics deals not with individual quantities as such, but
with aggregates of these quantities; not with individual incomes but with
national income; not with the individual prices but with price level; not with
individual outputs but with national output.”
According to Kennedy, “Macroeconomics aims to study
the economy as a whole and to focus on the overall dimensions of economic life
in order to bypass the drudgery and human impossibility of studying the whole
by studying each of its individual parts.”
It is possible
to study economy as a whole without going into the details of each individual
unit within the economy. Economists have
found that the study of the economy as a whole or aggregate quantities is not
only meaningful but extremely useful. It should however be remembered that
study of aggregates is does not belong exclusively to macroeconomics. There are
some aggregates which are dealt with microeconomics as well. But the aggregates
dealt with macroeconomics are different from the aggregates dealt with in
microeconomics. For example, microeconomics studies the market demand and
supply of an individual product which is aggregate of individual demand of
various consumers and individual supply of various firms. But macroeconomics
deals with aggregate demand of the economy as a whole; although macroeconomics
also studies sub aggregates yet the main purpose of these aggregates is to
arrive at nationwide total for that sector.
Gardner
Ackley, writes "Macroeconomics concerns itself
with such variables as the aggregates volume of the output of any economy,
within the extent to which its resources are employed, with the size of
the national income, with the general price level."
Shapiro says, "Macroeconomics
deals with the functioning of the economy as a whole."
According to
Culbertson, “Macroeconomic theory is the theory of income, employment, prices
and money.” This definition gives weightage to the study of determination of
national income and employment along with the study of money market.
The above
mentioned definitions make it clear that it is difficult to include all
possible details in a definition as it covers many fields such as:
1. The theory of National Income determination
along with its two constituents, i.e. consumption and investment,
2.
Theories of inflation and unemployment,
3.
Theories of growth and fluctuations in output,
employment and income, and
4.
Macro theories of distribution of output.
Besides above,
international aspects have recently been added to the subject. These include
global stabilization aspects of fiscal and financial policies, international
monetary policy and exchange rate management policy.
Why macroeconomics is becoming more popular in recent times?
The growing
popularity of macroeconomics is due to the simplified assumption taken for the
approach. It is assumed that many factors affecting individual behaviour cancel
one another out in aggregation process. These factors have no effect in
macro-economic relations. Thus the aggregate behaviour rests on only a few
fundamental variables. This makes the analysis of macro problems easy avoiding
theoretical, computational and measurement problems. This simplification is the root cause of the
popularity of the subject in recent years.
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