Macro Economics:
The name ‘macro’ is derived; from the Greek word “uakpo” which means huge or large. Macro-economics, the remaining half of economics, is the study of the manners of the economy as a total. In other words, macro economics deals with total or large aggregate such as national income, output and service, total spending, aggregate saving and aggregate asset and the general stage of prices. In the words of Boulding, “Macro economics deals not with individual quantities as such but with aggregates of these quantities, not with individual incomes but with the national Income, not with individual prices but with the price level, not with individual outputs but with the national output. It studies the determination of national output and its growth overtime. It also studies the problems of recession, unemployment inflation, the balance of international payments and the policies adopted by the governments to deal with these problems.
Main issues in Macro economics:
The main issues which are addressed in macro economics are in brief as under:
(1) It helps in understanding the determination of income and employment. Late J.M. Keynes laid great stress on macro-economic analysis. He, in his revolutionary book, “General Theory, Employment interest and Money” brought drastic changes in economic thinking. He explained the forces or factors which determine the level of aggregate employment and output in the economy.
(2) Determination of general level of prices. Macro economic analysis answers questions as to how the general price level is determined and what is the importance of various factors which influence general price level.
(3) Economic growth. The macro-economic models help us to formulate economic policies for achieving long run economic growth with stability. The new developed growth theories explain the causes of poverty in under developed countries and suggest remedies to overcome them.
(4) Macro economics and business cycles. It is in terms of macroeconomics that causes of fluctuations in the national income are analyzed. It has also been possible now to formulate policies for controlling business cycles i.e. inflation and deflation.
(5) International trade. Another important subject of macro-economics is to analyze the various aspects of international trade in goods, services and balance of payment problems, the effect of exchange rate on balance of payment etc.
(6) Income shares from the national income. Mr. M. Kalecki and Nicholas Kelder, by making departure from Ricarde theory, have presented a macro theory of distribution of income. According to these economists, the relative shares of wages and profits depend upon the ratio of investment to national income.
(7) Unemployment. Another macro economic issue is to explain the causes of unemployment in the economy. Stagflation is another important issue of modern economics. The Keynesian and post Keynesian economists are putting lot of efforts in explaining the causes of cyclical unemployment and high unemployment coupled with inflation and suggesting remedies to counteract them.
(8) Macro Economic Policies. Fiscal and monetary policies affect the performance of the economy. These two major types of macro economic policies are central in macro economic analysis of the economy.
(9) Global Economic System. In macro economic analysis, it is emphasized that a nation’s economy is a part of a global economic system. A good or weak performance of a nation’s economy can affect the performance of the world economy as a whole.
Limitations of Macro Economics:
The main limitations o macro economics are as follows:
- The macro economics ignores the welfare of the individual. For instance, if national saving is increased at the cost of individual welfare, it is not considered a wise policy.
- The macro economics analysis regards aggregates as homogeneous but does not look into its internal composition. For instance, if the wages of the clerks fall and the wages of the teachers rise, the average wage may remain the same.
- It is not necessary that all aggregate variables are important. For instance, national income is the total of individual incomes. If national income in the country goes up, it is not necessary that the income of all the individuals in the country will also rise. There is a possibility that the rise in national income may be due to the increase in the incomes of a few rich families of the country.
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