What is macroeconomics?

Alongside microeconomics, macroeconomics is one of the two sub-areas of economics and deals with the macroeconomic behavior of the individual economic sectors, analyzes macroeconomic markets and their interrelationships.

In this lesson we give you an overview of the importance of macroeconomics in economics and its relationship to microeconomics. We will also introduce you to their most important terms and tasks. After this lesson you can put your knowledge to the test with a few practice questions.

  • Synonyms: macroeconomics | Macro theory | Macroeconomic Theory
  • English: Macroeconomics

What is the importance of macroeconomics?

Since macroeconomic processes are considered and analyzed in macroeconomics, they are of great importance both in economics and in economic policy. Together with microeconomics, it forms economic theory.

Relationship between micro and macro economics

While macroeconomics addresses macroeconomic behavior and processes, microeconomics only deals with the behavior of individual economic subjects such as B. with a household or a company. For example, it examines the creation of the price for a certain product and researches how individual markets work.

Despite the clear separation that is possible between the two areas, micro- and macroeconomics are closely linked, because macroeconomic processes are ultimately a multitude of individual decisions that take place at the microeconomic level.

Macroeconomics: Household and Business

Macroeconomic Issues

A typical macroeconomic question, for example, is to find out which factors influence the overall economic demand for goods and services. In order to be able to answer this question, one has to fall back on microeconomic theories, for example in order to be able to analyze the consumption behavior of an individual household.

According to phonejust, the macroeconomic processes cannot be viewed in isolation from individual decisions. Consequently, macroeconomic theories are always based on microeconomic foundations.

macroeconomics

Example of a macroeconomic issue

An economist would like to find out how macroeconomic investment activity can be stimulated.

This is accompanied by several questions that affect companies:

  • Why does a company choose a production location in Germany?
  • Why does it feel compelled to stop the production of one good and take up another good in return? (Along with this, the reason can be determined why the households that previously produced good not as strong demand.)
  • Why does a company decide to relocate part of its production abroad?

Although these questions are of a microeconomic nature, their answers are necessary in order to be able to satisfactorily answer the overarching macroeconomic question.

The main tasks of macroeconomics

Macroeconomics performs some of the most important roles in economics. These include:

  • National accounts
  • Business cycle theory
  • Income and employment theory
  • Growth theory

For the purpose of a clear analysis of the complex economic relationships within an economy, macroeconomics reduces the number of markets examined to four macroeconomic markets:

  • Goods market
  • labour market
  • Money market
  • Securities market

Macroeconomics takes on the task of determining essential key variables that provide information about the overall economic situation of a country.

These include:

  • Macroeconomic production of goods and services
  • Total income
  • Balance of payments
  • inflation
  • unemployment

The above-mentioned overlaps between micro and macroeconomics are particularly evident in the sub-areas of monetary theory and the theory of monetary policy. In addition, the areas of public finance, foreign trade theory and distribution theory have elements of both micro and macroeconomics.

The role of the state

One of the most important areas of investigation is the question of the role of the state in an economy, since recommendations for economic policy are derived from these theories.

The government always has an interest in influencing the economy according to its ideas. Politically defined goals, such as the stability of the price level, a reduction in unemployment up to full employment and economic growth, play a particularly important role here, as they are perceived and assessed by the voters as a qualitative characteristic of a government. Governments try to achieve these goals through taxes, interest and government spending, for example.

 

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