Definition: Macroeconomics deals with the total or aggregate level of output, the aggregate level of consumption, the aggregate level of investment, the aggregate level of employment and the general price level in the economy.
Macroeconomics (from the Greek prefix makro- meaning "large" and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies.
Macroeconomics Concerns:
- Unemployment
- Inflation
- Output Growth
– Unemployment:
- Unemployment refers to the situation where the population of a country do not find work to earn their livelihood.
- Unemployment represents the ratio of the labor force that fails to get employment.
- The unemployment rate is a key indicator of the economy’s health.
- The existence of unemployment seems to imply that the aggregate labor market is not in equilibrium.
Problem of Unemployment:
Classical economists believed in full employment, i.e. all resources of the economy are fully employed and there is no possibility of unemployment. However the Great Depression of 1930 brought a lot of miseries in the form of a slump and vast unemployment. So Keynes wrote a book in 1936, “General Theory”, in which he rejected the philosophy of full employment.
During 1930, the phenomenon of unemployment had a lot of attractions. Policymakers presented their ideas to remove unemployment. The government tried to provide better social and economic services due to which government expenditures went on increasing.
– Inflation
- Inflation is an increase in the overall price level.
- Hyperinflation is a period of very rapid increases in the overall price level.
- Hyper-inflation is a rare phenomenon.
- Deflation is a decrease in the overall price level.
- Prolonged periods of deflation can be just as damaging for the economy as sustained inflation.
– Output and Growth:
- Growth refers to a change in the level of economic activity from one year to another year.
- Growth means that poor and developing countries wish to attain a rise in their national income and per capita income.
- Aggregate output is the total quantity of goods and services produced in an economy in a given period.
- The aggregate output is the main measure to see how well an economy is doing.
The Problem of Growth:
- It is of great concern to economists what the level of rise in investment is so that the economy can achieve its desired level of income and employment without inflation and deflation. Such a situation will result in the full utilization of resources.
- Full employment means the maximization of output employment in the presence of existing resources while growth is attached to an increase in output employment.
