Macroeconomics is an important part of a unified economic theory. Its principles are used by the state to stabilize the state of the market during cyclical crises and recessions. Scholars have been studying macroeconomics for decades. John Keynes's definition remains classic and generally accepted.
Keynes' Theory
In the 20th century, a new method of studying the national economy appeared. Researchers began to consider the economy of one country as a whole. So what is macroeconomics? This is a science that studies the national economy within a single complex system. This approach was finally formed quite recently, although some of its signs were present in the works of the classics of political economy (Adams, Marx, etc.).
This independent science originated in the 30s of the XX century. Most of all, it is associated with the discoveries and activities of the English explorer John Maynard Keynes. His theory appeared under the impression of the events of that turbulent era. At the end of the 1920s, the Great Depression occurred, which led to financial crises in the United States and European countries. It became clear that there was a failure in the usual economic system of market relations. The era has challenged scientists.
Macroeconomics and microeconomics
John Keynes formulated what macroeconomics is in his 1936 book The General Theory of Employment, Interest and Money. It was from that moment that the development of a new scientific discipline began. But even half a century before macroeconomics, microeconomics appeared. It does not study the entire economy as a whole, but the decisions of specific market participants. Also, microeconomics explores the problems of pricing. The scope of her analysis includes mechanisms for the use of scarce resources.
So, microeconomics deals with individual economic units, while macroeconomics studies the entire national economy as a whole. Keynes in his programmatic work explained which concepts and phenomena are most important for his new theory. These are gross domestic product, inflation, unemployment and the average price level. The analysis of all this allows us to understand what macroeconomics is. The definition emphasizes that it is an independent science. Nevertheless, it cannot be said that macroeconomics and microeconomics exist independently of each other. They are two branches of a single scientific theory and therefore interact with each other in many ways.
Criticism of classical political economy
To understand what micro- and macroeconomics are, you need to look at the theory that they were opposed to. And it consisted in the law of markets, which was formulated by Jean-Baptiste Say. It was a French economist who belonged to the classical schoolpolitical economy, which peaked at the beginning of the 19th century.
The essence of its main law is that the sale of goods generates income, which, in turn, are the foundation for the formation of new demand. This conclusion extended to national economies as a whole up to the moment when John Keynes's book was published. The scientist analyzed the global crisis at the end of the 20s and came to the conclusion that the mechanisms that Sei formulated do not work in modern conditions.
Government intervention in the economy
Keynes believed that the spontaneous market is unpredictable. Therefore, the scientist advocated strengthening state regulation of the economy. What is macroeconomics in this context? This is a tool of the state, necessary for analyzing the state of the national economy. The authorities can use macroeconomic methods to properly manage his condition.
Keynes's ideas resonated at the highest level. In the 60s, his theses formed the basis of the economic policy of the USA, Great Britain, Canada and Sweden. All these countries today are distinguished by a high standard of living and financial stability. There is in this well-being and the merit of macroeconomics as an applied science.
The structure of macroeconomics
The division of the single economy into markets best illustrates what macroeconomics is. This science distinguishes in the general economy several different from each otherparts. The first market is the market for factors of production. He is the most important. This includes resources such as land, labor, financial and physical capital. Some scientists also include in this list the totality of human talents and skills in society.
The next market is the market for services and goods. This is an important subject of macroeconomics. What it is? This includes the production of goods and services, that is, in other words, the formation of supply and demand - the main engines of any economy. Real values are exchanged here, therefore this market is called real.
Another important part of macroeconomics is finance. They are used in the money market and the securities market. Here, capital is mobilized, loans are provided, and exchange operations are carried out. The so-called continental model of the financial market focuses on securities, insurance companies, pension and investment funds.
Business cycles
Macroeconomic theory introduced the term of economic cycles into scientific use. They represent cyclical fluctuations - ups and downs in the development of the economy. Business cycles are present in any system. They have several stages - peak, recession and bottom. Fluctuations in business activity can be irregular and unpredictable.
Scientists who have studied what macroeconomics and microeconomics are have identified the main causes of such cycles. These can be revolutions, wars, a change in the mood of investors, etc. All this affects the balancebetween supply and aggregate demand. The nature and nature of economic cycles are directly related to such macroeconomic phenomena as unemployment and inflation.
Economy overheating
Theorists have also proposed the term "overheating economy". This state is a situation where the country achieves the maximum of its financial capabilities. Because of this, oddly enough, inflation and a significant increase in prices may occur.
They, in turn, often cause economic recession and cyclical unemployment. If a similar situation is observed in the country, the state should intervene in it. It is the theoretical foundations of macroeconomics that can come to the aid of the authorities. Keynes and his followers studied the positive experience of overcoming the crisis. Many of the principles they formulated were used by various states during the recession. The totality of measures for the recovery of the economy - that's what macroeconomics and microeconomics are. The definition of these disciplines is in every thematic textbook.
Fiscal and monetary policy
States in which the authorities know well what macroeconomics is, successfully cope with cyclical crises. The stabilization policy needed to mitigate the effects of a recession is called fiscal and monetary policy.
What is the difference between them? In the 20th century, theorists formulated what fiscal policy and monetarymacroeconomics. The state can reduce taxes or increase its own purchases in the market. Such stabilization measures are fiscal policy. It also has its drawbacks. In particular, they lie in the fact that the state may suffer serious losses and be left with a budget deficit.
Monetary policy uses other methods to stabilize the economic situation in the country. For this, the Central Bank is used. It can release additional money supply into the market. The advantage of monetary policy over fiscal policy is that when it is carried out, the banking system reacts much faster to changes. This allows the economy to get out of the crisis earlier. Such a course is more profitable for the population also because in this case more consumer loans are issued. The main goal of monetary policy can be called ensuring price stability, production growth and full employment in society.
