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scope of macroeconomics

Macroeconomics in detail- Meaning, Scope, Nature, and Importance

 

Economics is a subject that deals with every situation that’s happening in the whole world. This subject finds its use at many stances in our lives. For example, Your mother does all the work at your home. From doing all the household chores, keeping a budget for the rations to fulfilling all your needs. Thus, it is one subject that deals in our day to day working of our life. The same subject has two broad categories – microeconomics and macroeconomics. The former deals with the individual units of an economy like the consumer or a household. On the other hand, the latter deals with an economy as a whole with studies of national income, output, etc. The understanding of this science is vast and at different lengths. But for the sake of simplicity, this article will only focus on the scope of Macroeconomics and its importance.

Microeconomics:

As mentioned above, Microeconomics is a branch of economics that deals with individual units of the economy. It involves its field of study on individual units like the consumer, or the household. The subject deals with problems associated with determining the price of a commodity. These direct or indirect factors affect the demand and supply of a commodity and the procurement of the satiety level of an individual. The main aim of microeconomics is maximizing profit and minimizing the costs incurred. This utilized in such a way that it is available to future generations and that there is an equilibrium.

Macroeconomics

The term macroeconomics came into existence in 1933 by Ragnar Frisch. However, its approach towards economic problems came in the 16th and 17th centuries. As a result, this originated with mercantilists.

It is that branch of science which deals with the economy as a whole or in totality including the Macro factors. The hope of macroeconomics does not involve studying the individual units of an economy. But, the economy as a whole, studies the total and average of the entire economy. Such as the national income, total employment, total saving and Investments, total demand and supply, and the general price level.

The subject of macroeconomics revolves around the determination of income and employment. Therefore, it is known as the “theory of income and employment.”

Control over the inflation and deflation cycle was only made possible by choosing the current economic policies. These policies were formulated at the macro level. The study of individual units has also become impossible. Moreover, governments’ participation through monetary and fiscal measures in the economy has increased. Therefore, the use of macro analysis is irrefutable.

So now, we understand that macroeconomics is a specialized field of Economics. It focuses on the economy through the aggregate of the individual units to determine there is a large impact on the complete nation. All the prominent policies and measures are based on this concept. For example, the per capita income determines the National income. This is nothing but an average of the total earnings of all the citizens in the nation.

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Scope of Macroeconomics:

Macroeconomics is an essential field of study for economists. Government, financial bodies and researchers analyze the general national issues and economic well being of a nation.
 
It mainly covers the measure fundamentals which are macroeconomic theories and macroeconomic policies. Here the MacroEconomic theories involve economic growth and development, the theory of national income, money, international trade, employment, and general price level. In contrast, macroeconomic policies cover fiscal and monetary policies.
 
The study of problems like unemployment in India or the general price level or the problem of balance of payment(BOP) is a part of the macroeconomic study because it relates to the economy as a whole.

Macroeconomic Theories:

Macroeconomic Theories

It is understood that the Government is the regulating body of a nation. It considers the various aspects which are critical and have a direct impact on the lives of the citizens. There are six theories under the scope of macroeconomics:

Theory of Economic Growth and Development:

The growth of an economy also comes under the study of macroeconomics. The resources and capabilities of an economy are evaluated based on the scope of macroeconomics. It schemes the increase in the level of national income, output, and the environment level. They have a direct impact on the economic development of an economy.

Theory of Money:

Macroeconomics assesses the impact of the reserve bank in the economy, the inflow and outflow of capital, and its effects on job rates. The frequent change in the value of money caused due to inflation and deflation diversely affect the economy of a nation adversely. They can be aggravated by taking monetary, fiscal policies and direct control measures for the economy as a whole.

Theory of National Income:

It includes different topics related to the measurement of national income, including revenue, spending, and budgeting. As a macroeconomic study, it is vital for assessing the overall performance of the economy in terms of national income. At the onset of the Great Depression of the 1930s, it was essential to investigate the triggers of general overproduction and general unemployment.
 
This led to the creation of data on national income. It helps to forecast the level of economic activity. It also helps in understanding the income distribution among various classes of citizens.

Theory of International Trade:

It is an area of study that focuses on the export and import of products or services. In brief, it points out the effect on the economy through cross-border commerce and customs duty.

Theory of Employment:

This scope of macroeconomics assists in determining the level of unemployment. It also determines the conditions that lead to such conditions of unemployment. Hence, this affects the production supply, consumer demand, consumption, and expenditure behavior.

Theory of General Price Level:

The most significant of these is the study of commodity prices and how specific price rates fluctuate due to inflation or deflation.

Macroeconomic Policies:

The RBI and the Government of India together function to imply the macroeconomic policies, for the nation’s improvement and development.
It is classified into the following two sections:

Fiscal policy:

It refers to how the expenditure meets over the deficit income which explains itself as a form of budgetary decision under macroeconomics.

Monetary policies:

The Reserve Bank is establishing monetary policy in coordination with the Government. These policies are measures taken to maintain economic stability and growth in the country by regulating the different interest rates.

Importance of macroeconomics:

Macroeconomics is a vital concept that considers the whole nation and works for the welfare of the economy.

1. Trade Cycle Analysis

It is helpful for the timing of economic fluctuations to prevent or be equipped for any financial crisis or any long – term negative situations.

2. Economic Policies Formulation

The system of fiscal and monetary policies depends entirely on the analysis of the widely held macroeconomic conditions in the nation.

3. Downsizes the Effect of Inflation and Deflation

Macroeconomics mainly aims to helps the Government and the financial bodies to prepare economic stability in the country.

4. Facilitates Material Welfare

This stream of economics gives a broader perspective of social or national issues. The ones who want to contribute to the welfare of society need to study macroeconomics.

5. Regulates Economic System

It ensures or keeps a check over the proper functioning of the country’s economy and actual position.

6. Resolves Economic Issues

The analysis of macroeconomics theories and issues helps the economists and the Government to figure out the causes and possible solutions of such macro-level problems.

7. Economic Development

Dealing with various economic conditions through the use of macro-economic data opens the door for growth in the country.

Issues Related to Macroeconomics

An economist needs to analyze the following problems while studying macroeconomics:

1. Issues Related to Government Policies

Business activities also result in societal costs like deforestation and land degradation. To regulate this social expense, the Government carries out clear laws and legislation. These regulations serve as a barrier for business organizations.

2. Issues Related to Macroeconomic Trends in the Economy

The economic conditions in a nation have an immense impact on the activities of every organization either directly or indirectly. Different economic patterns or variables impacting industry include the Gross Domestic Product ( GDP), job rates and conditions, revenue incentives, banking, and pricing policies.

3. Issues Related to Foreign Trade

Many organizations trade (either export or import of goods) in international markets. They are sensitive to the fluctuations in the economy of other countries, exchange rates, prices, and other varied factors. Hence, such changes may influence the economic conditions of the country. This might also end up affecting business organizations.

Concluding

Macroeconomics is the foundation of many economic policies. It lays the basis of a regional decision-making mechanism in a nation. But, the policies underpinned by this concept usually have a double impact on society as a whole and individual citizens. It requires an observational, logical, incredible approach.

 

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