Macroeconomics
Define Macroeconomics and it's major issues
Macroeconomics is the study of the economic system as a whole . It examines the conditions involved in aggregate production , aggregate income , aggregate consumption , aggregate saving and investment as well as aggregate employment . That is why it is also called " Aggregate Economics ". Macroeconomics is the study of relationship between broad economic aggregates. Following are some of the definitions of Macroeconomics :
" Macro economics deals not with individual quantities but with aggregates , not with individual income but with national income , not with individual price but with general price level , not with individual output but with national output "
Major issues of macroeconomics
1. Economic growth : In spite of short - term fluctuations of output that are associated with the trade cycle , the long - term trend of total output has been upward in most industrially advanced country . The trend in the nation's total output over the long period is known as economic growth. sion of society's production capacity such as bringing It refers to an new land under cultivation or setting up new factories . Growth is measured by the annual rate of increase of per capita income and is illustrated by a rightward shift of the production possibility curve.
2.Business Cycle : The prices and output of an economy tends to move in a series of ups and downs. This situation is characterized by a term known as trade or business cycle. Expanding capacity during the onset of a recession could be disaster, while having too little opportunity. Macroeconomics production units to ameliorate a whole . There are four
1. Trough : The characteristics of trough are : high unemployment, low demand, low profits. If the bottom point is abnormally deep, it is called slump.
2. Recovery or Expansion: The characteristics of recovery are: rise in employment, income and consumer spending.
3. Peak: Peak is the top of a business cycle. At this point, existing capacity is utilised to a maximum level. It creates a situation of excess demand. The top of abnormally strong recovery is called a boom .
4. Recession : A recession or contraction or downturn in economic activity is characterized by fall in real GDP , fall in demand resulting in fall in production , employment and profit . A long lasting recession is called depression .
3 Inflation : Inflation is a general rise in prices of almost all the commodities. Increase in GDP generally brings inflationary tendencies in an economy. This tendency affects people differently. C.N. Vakil calls it an invisible robbery. Hyper inflation must be controlled otherwise it will create a havoc in an economy. The study of macroeconomics helps us in controlling inflation . An important policy problem for the government is how to stimulate economic activities without adversely affecting inflation.
4.Unemployment :The fluctuations in economic activities directly affect the level of employment in an economy. The development of macroeconomics was originally due to high rate of unemployment during 1930's . Macroeconomics is the off - spring of the problem of unemployment . Main method of reducing unemployment during 1930's was the intervention of the government in economic activities. Public finance was adopted as a tool to reduce the level of unemployment .
5.Fiscal policy : Fiscal Policy is government's policy concerning taxes and expenditure. Earlier taxes were considered as a source of revenue for the government but presently it is a means to eradicate economic evils from an economy. Government of almost all the countries have an annual budget which is the statement of revenue and receipts of the state every year.
6.Monetary Policy:6. Fiscal policy is sometimes ineffective in checking the fluctuations in price level , unemployment , saving and investment in an economy . The Central Bank of a country plays an important role in improving the economic conditions of the people. Monetary policy involves changing interest rates , or the money supply , in order to influence the economy . High interest rates are a symptom of a tight monetary policy . When interest rates are high , firms find it more costly to borrow , and this makes them more reluctant to invest in expanding business , low interest rates tend to stimulate demand . Thus , monetary policy is another issue of macroeconomics . Thus , it is clear that macroeconomics have various issues issues , an appropriate policy instrument
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June 30, 2022
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