Macroeconomics
Macroeconomics is the branch of economics that studies the behaviour and performance of an economy as a whole. It focuses on aggregate indicators such as gross domestic product, the overall price level, the unemployment rate, and the money supply, rather than on the decisions of individual consumers and firms.[1]
Macroeconomics contrasts with microeconomics, which studies the behaviour of individual agents and markets. The two fields are closely interrelated: aggregate outcomes are the sum of individual decisions, and macroeconomic conditions shape the environment in which individual agents operate.[1]
Subject matter
Macroeconomics addresses a set of central questions:
- What determines the level of national output and its rate of economic growth?
- What causes inflation and deflation, and how can they be controlled?
- What causes unemployment and how can it be reduced?
- How do fiscal policy and monetary policy affect the economy?
- What causes business cycles?
Key concepts
Macroeconomics employs a range of aggregate concepts and models, including:
| Concept | Description |
|---|---|
| Gross domestic product (GDP) | The total market value of final goods and services produced in an economy. |
| Inflation | A sustained increase in the general price level. |
| Unemployment | The share of the labour force without work but actively seeking it. |
| Monetary policy | Central bank management of money supply and interest rates. |
| Fiscal policy | Government management of taxation and public spending. |
Major schools of thought
Macroeconomic theory has developed through several schools, including Keynesian economics, monetarism, new classical macroeconomics, and new Keynesian economics. These schools differ in their views on the responsiveness of prices and wages, the effectiveness of policy, and the ability of markets to self-correct.[1]