Macroeconomics is defined as an area of economic theory that studies the processes taking place at the level of the national economy as a whole

Macroeconomics is defined as an area of economic theory that studies the productivity, structure, behavior and decision-making process of the economy as a whole, rather than its individual subjects, segments or markets studied at the micro level. It considers the national, regional and global dimension. Micro- and macroeconomics are the two main approaches to studying the economy.

Definition

Macroeconomics (the prefix "macro" from Greek is translated as "large") is studying aggregated indicators, for example, gross domestic product, unemployment rate, price indices and interrelations between various sectors of the economy. Its main goal is to find an answer to the question of how everything functions. Macroeconomists are engaged in building models that explain the relationship between indicators such as production, national income, inflation, unemployment, savings, consumption, investment, international trade and finance. If at the micro level, scientists primarily study the actions of individual agents and individual markets, then the economy is seen as a system in which all elements are interrelated and affect success or failure.

Subject of study

This is a very broad area. However, we can say that macroeconomics is defined as an area of economic theory that studies two main aspects:

• The causes and consequences of fluctuations in national income in the short term. That is a business cycle.
• Determinants of long-term economic growth. That is, the national income itself.

Macroeconomic models and forecasts made by them are used by national governments to develop and evaluate their own monetary and fiscal policies.

Basic concepts

Macroeconomics is defined as an area of economic theory that studies the national economy as a whole. Therefore, it is not surprising that it covers many concepts and variables. However, there are three main themes of macroeconomic research. Theories can be associated with production, unemployment, or inflation. These topics are important for all economic agents, and not just for researchers.

Production

The national income is an indicator of the aggregate volume of all that the state releases over a certain period of time. Since macroeconomics is defined as an area of economic theory, which studies the entire national economy as a whole, it is important to evaluate production not only in kind, but also in value terms. Issue and income are often considered equivalents. They are usually expressed through gross domestic product or one of the indicators of the system of national accounts. Researchers who are involved in the long-term prospect of changing output are studying economic growth. The latter is influenced by such indicators as the improvement of technology, the accumulation of equipment and other capital resources, the improvement of education. Business cycles can cause short-term downturns in production, that is, so-called recessions. National policy should be aimed at their prevention and acceleration of economic growth.

Unemployment

Macroeconomics is defined as an area of economic theory, which, as mentioned above, is engaged in the study of three main themes. Unemployment is one of them. Its level is measured by the percentage of the unemployed population. This percentage does not include people of retirement age and students. There are several types of unemployment:

• Classical. Appears when the salaries established on the labor market are too high, so companies are not ready to hire additional staff.
• Frictional. This type of unemployment appears due to the fact that it takes time to find a new place of employment - even if there are suitable vacancies.
• Structural. It covers a whole variety of subspecies, which are associated with restructuring in the economy. In this case, there is a discrepancy between the people's skills and skills that are necessary for employment. This problem is increasingly arising in connection with the possibility of robotization and computerization of the economy.
• Cyclic. Oaken's law speaks of an empirical relationship between economic growth and unemployment. A three percent increase in production leads to an increase in employment by 1%. However, one must understand that unemployment growth is inevitable during recessions.

Inflation

Macroeconomics is determined not only through production and the number of employed labor. It is also important how prices for goods from the consumer basket behave . These changes are evaluated using special indexes. Inflation occurs when the national economy "overheats," growth begins to occur too quickly. In this case, macroeconomics is defined as an area of economic theory that studies how you can control the supply of money and avoid a price jump. Based on its conclusions, state monetary and fiscal policy is being built . For example, to reduce inflation, you can increase interest rates or reduce the supply of money. The absence of any effective action from the central bank can lead to the appearance of uncertainty in the society and other negative consequences. However, one must understand that deflation can lead to a reduction in production. Therefore, it is important to stabilize prices, not allowing them to fluctuate excessively in either of the parties.

Macroeconomic models

In order to clearly explain how the world and national economies work, graphics are used. Macroeconomics is defined as an area of economic science that studies three main types of models:

1. AD-AS. The model of aggregate supply and demand considers equilibrium both in the short- and the long-term.
2. IS-LM. The investment-saving schedule is a combination of equilibrium in the money and commodity markets.
3. Models of growth. For example, the theory of Robert Solow.

Monetary and Fiscal Policy

Often, macroeconomics is defined as a field of theory, the conclusions and forecasts of which can easily be translated into practice. And indeed it is. To stabilize the economy, monetary and fiscal policies are often used. The main goal of these approaches is to achieve GDP growth through more full employment.

Monetary policy is carried out by central banks and is linked to controlling the supply of money through several mechanisms. For example, the state can issue cash to buy bonds or other assets. This will reduce interest rates. Monetary policy may be ineffective due to a liquidity trap. If inflation and interest rates are close to zero, then traditional measures stop working. In this case, for example, quantitative easing can help .

Fiscal policy involves the use of government revenues and expenditures to influence the economy. Suppose there is insufficient capacity utilization in the national economy. The state can increase its expenses, the multiplier effect will be connected , and we will be able to observe the growth of output of goods and services.

History of the development of theory

Macroeconomics is defined as an industry that emerged from discussions about business cycles. The quantitative theory of money was very popular before the Second World War. One of her versions belonged to Irving Fisher. He formulated a well-known equation: M (money supply) * V (their turnover speed) = P (price level) * Q (output). Ludwig von Mises, representative of the Austrian school, in 1912 published a paper in which for the first time the macroeconomic topics were covered. The theory was formed after the Great Depression. In modern form, macroeconomics began with the publication of John Maynard Keynes's The General Theory of Employment, Interest and Money. Representatives of all directions, in particular monetarists and neoclassicists, were engaged in a further study of the economy as a whole.