Introduction to Macroeconomics 1

WHAT IS MACROECONOMICS ALL ABOUT?

Macroeconomics is a branch of economics that focuses on the behavior and decision-making of an economy as a whole. It describes and explains economic processes that concern aggregates. An aggregate is a multitude of economic subjects that share some common features. By contrast, microeconomics treats economic processes that concern individuals.
For example, the decision of a firm to purchase a new office chair from company
X is not a macroeconomic problem. The reaction of Austrian households
to an increased rate of capital taxation is a macroeconomic problem.

From the foregoing, macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions.  They develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, government spending and international trade.

Though macroeconomics encompasses a variety of concepts and variables, but there are three central topics for macroeconomic research on the national level: output, unemployment, and inflation.   Macroeconomics investigates aggregate behavior by imposing simplifying assumptions (“assume there are many identical firms that produce
the same good”) but without abstracting from the essential features.
These assumptions are used in order to build macroeconomic models. Typically,
such models have three aspects: the ‘story’, the mathematical model,
and a graphical representation.

ISSUES ADDRESSED BY MACROECONOMICS

The issues addressed by macroeconomics are as follows;

  • What determines a nation’s long-run economic growth?
  • What causes a nation’s economic activity to fluctuate?
  • What causes unemployment?
  • What causes prices to rise?
  • How does being a part of a global economic system affect nations’ economies?
  • Can government policies be used to improve economic performance?

 

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