What is macroeconomics?
Macroeconomics shows up as a viable and distinct school of thought in the economic world in the early 20th Century out of Sweden’s economists Ragnar Frisch (March 3, 1895 – January 31, 1973) and Johan Gustaf Knut Wicksell (December 20, 1851 – May 3, 1926).
Macroeconomics is the branch of economics that studies the behavior of an economy as a whole. In comparison to microeconomics that studies the behavior of the firm and the individual. Macro looks to explain what causes changes in the aggregate economy and some of the principle indicators include: Gross Domestic Product, the flow of money, price levels, unemployment, interest rates and inflation. Macroeconomics uses these indicators to create models to help us understand what cause these changes and how to predict them. There are two principle questions macro attempts to answer. The first is what causes changes in or predicting changes in business cycles, going from recessions to expansions. The second question has to do with explaining what happens to an economy in the long term.
The major indicators and questions that macro attempts to answer have been listed so next up are a few of the tools used to keep an economy motivated. The shortest and most succinct explanation of the biggest tool is money. The flows and velocity of money is what keeps an economy moving. The two major forces used to shape economic policy are monetary and fiscal policy. Fiscal policy has to do with what the Government does with its spending and control over taxes to influence the economy. Monetary policy is what the Federal Reserve uses and it has to do with controlling interest rates. (I know the Fed does other things too like control reserve requirements but going with simplicity here.) When the Fed manipulates interest rates it effects how banks loan to each other, how they borrow from the Fed, the amount they charger for loans, the amounts they offer on deposits, and credit availability. Combined, fiscal and monetary policy attempt to improve an economy’s stability and growth rates for the long term.
Macroeconomics takes all the information gathered from those indicators then creates models to explain what’s happening now and to forecast for the future. Based on those models the Government and the Fed will make decisions to help keep the economy strong and stable.
For more information about macroeconomics, fiscal and monetary policy, or anything else covered above how they work you can visit the Fed’s website http://www.frbsf.org
The field of economics known as macroeconomics focuses on the behaviors of a national economy, or a regional economy, as a whole. Macroeconomics is a very general field that concerns itself primarily with large scale indicators, such as unemployment rates, and with the creation of models meant to explain relationships between those indicators. Macroeconomics is also considered the complement to microeconomics, which studies the actions of individuals rather than larger scales. Macroeconomics became a viable area of economic study in the 1930s due directly to the Great Depression. Until that time, economists did not consider individual activities from the behavior of a national economy as a whole. John Maynard Keynes, a British economist, and other economists who worked to explain the causes of the Great Depression, were especially influential in the development of macroeconomics. Keynes’ theories dominated the macroeconomics field until fairly recently. Keynesians relied on aggregate d
