The study of economics is divided into two major sub fields – microeconomics and macroeconomics. Macroeconomics is the branch of economics which deals with the overall performance of the economy as a whole.
What is Macroeconomics?
Microeconomics is the branch of economics that studies how the aggregate economy behaves. It did not even exist in its modern form till 1936 when John Maynard Keynes published his revolutionary General Theory of Employment, Interest and Money. In his new theory, Keynes developed an analysis what causes business cycles, alternating spells of high unemployment and high inflation. Although macroeconomics has come far since Keynes’ theories, the issues addressed by him still define the study of macroeconomics.
The term “macro” has been derived from the Greek word “makros” which means large. So, macroeconomics focuses on the way the economy functions as a whole. This includes taking into consideration variables like unemployment, GDP and inflation. The government uses these variables and factors to develop its economic policies. Through central banks, the government comes up with its fiscal and monetary policies to keep the economy in check. Macroeconomics is that part of economics which studies the behavior of aggregates of the economy as a whole. National income, aggregate output, aggregate consumption etc are examples of macroeconomic concepts. Its main tools are aggregate demands and aggregate supplies.
The objective of macroeconomics is to study the problems of the economy such as inflation, unemployment, poverty etc. It deals with how different economic sectors such as households, industries, government and foreign sector make their decisions. It analyzes a variety of economy-wide phenomenon such as inflation, price levels, rate of growth, national income, gross domestic product (GDP) and changes in unemployment.
Macro economists develop theories explaining relationships between a variety of factors such as consumption, inflation, savings, investments, international trade and finance, national income and output. Such macroeconomic theories, and what thy predict, are used by government entities to help in the construction and evaluation of economic policies.