Macro Economics

Macro Economics is the study of the economics system as a whole. It studies not individual economics units like the consumer or firm or industry but the whole economic system. It deals with the aggregates– the national output, aggregated employment, total consumption, total investment and the general price level. It establishes a functional relationship between these aggregate variables.

Gardner Ackley says: “Macro economics concerns with such variables as the aggregate volume of output of an economy, with the extent to which its resources are employed, with the size of national income and with general price level”. It thus looks at the overall dimensions of economic life. It looks at the total size and shape and functioning of ‘elephant’ of economic experience, rather than the working of individual parts. To alter the metaphor, it studies the character of the forest, independently of the trees that compose it. While micro economics explains the movements of individual parts of the economy, macro economics concern itself with the movement of the entire economy.

Importance and Significance of Macro Economics

  1. Understanding the working of the economy: Macro economic theory enables us to understand how the economic system as a whole works. The theory attempts to explain why economy wide problems arise. We can how why unemployment or inflation arises. Macro economic variables like output, employment, price level, investment, consumption etc, are statistically measurable. Their behaviour can be estimated year after year.
  2. Formulating policies: Theory not only sheds light but also offers fruit. Policies can be formulated on the basis of analysis. Economists mention four macro economic goals; full employment, price stability, economic growth and external balance. To achieve these goals, appropriate policies can be devised by the Government. Government interference and control are essential for achieving these macro economic goal.

Business firms operate under macroeconomic environment. Cyclical fluctuations in economic activity, government spending, inflationary conditions, changes in fiscal policies etc.