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Macro Economics

By HWA | Publish On: August 6, 2011 | Posted In:

Macroeconomics is the study of the structure and performance of national economies and of the policies that governments use to try to affect economic performance. Important branches in macroeconomics include the determinants of long-run economic growth, business cycles, unemployment, inflation, international trade and lending and macroeconomic policy.

As macroeconomics covers the economy as a whole, macroeconomists ignore the fine distinction among different kinds of goods, firms or market consumption. The process of adding individual economic variables to obtain economy wide totals is called aggregation.

The activities engaged in by macroeconomists include forecasting, macroeconomic analysis, macroeconomic research and data development.

The goal of macroeconomics research is to be able to make general statements about how the economy works. Macroeconomic research makers progress toward this goal by developing economic theories and testing them empirically – that is, by seeing, whether they are consistent with data obtained from the real world. A useful economic theory is based on reasonable assumptions, is easy to use, has implications that can be tested in the real world, and is consistent with the data and the observed behavior of the real world economy.

A positive analysis of an economic policy examines the economic consequences of the policy but does not address the question of whether those consequences are desirable. A normative analysis of a policy tries to determine whether the policy should be used.

Disagreements among macroeconomists may arise because of the differences in normative conclusions, as the result of differences in personal values and beliefs, and because of the differences in the positive analysis of a policy proposal.

The classical approach to macroeconomics is based on the assumptions that individuals and firms act in their own best interests and that wages and prices adjust quickly to achieve equilibrium in all markets. Under these assumptions the invisible hand of the free-market economy works well, with only a limited scope for government intervention in the economy.

The Keynesian approach to macroeconomics assumes that wages and prices do not adjust rapidly and thus the invisible hand of the free market economy may not work well. Keynesians argue that , because of slow wage and price adjustment, unemployment may remain high for a long time. Keynesians are usually more inclined than classics to believe that government intervention in the economy may help improve economic performance.

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Other articles on Economics include: Industrial Policy, Government Policies on Living standards, Balance of Payments, Economic Growth and Economic Development

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