Concept of Macroeconomics:
Macroeconomics is defined as the branch of economics which deals with aggregate economic variables such as national income, aggregate consumption, aggregate saving, total investment, etc. It examines how general price level is determined and how resources are allocated at the level of the economic system as a whole.
BASIC ISSUES IN MACROECONOMICS
The following are the main macroeconomics issues.
1.Unemployment:
Unemployment is the major issue in macroeconomics. If the problem of unemployment exists the society's actual output (GNP) will be less than its potential output. So the government has to ensure full employment, which implies absence of involuntary unemployment. Classical economists believed that if there is wage-price flexibility, unemployment would be automatically removed and full employment is established. But this did not happened during the Great Depression of 1930s.
Keynes explained that level of employment and national income are determined by AD and AS. According to him, given the AS in the short run, it is deficiency of AD that causes unemployment in the economy.
2.Inflation:
Another macroeconomic issue is to explain and analyze the problem of inflation. It refers to a phenomenon of persistent rise in price level. During inflation, some people gain but most people lose. Therefore, one of the objectives of the government is to ensure price stability.
Classical economists thought that it is the quantity of money that determines the price level. According to them, the rate of inflation depends on the growth of money supply in the economy.
But Keynes criticized the classical concept and explained his own theory of inflation. According to him, just as unemployment is caused by the deficiency of AD; inflation is due to the excessive AD.
3.Business Cycles:
Throughout the history of economics, market economies have experienced what are called business cycles. Business cycles refer to the fluctuations in output and employment with alternating periods of prosperity and depression. The causes of these business cycles in the market economies are important macroeconomic issues.
4. Economic Growth:
Another important macroeconomic issue is to explain about economic growth. The expansionary trend in the country's total output over a long period is known as economic growth. It is measured by the annual rate of increase in per capita income. It refers to a situation when the rate of increase in per capita income exceeds the rate of population growth. There are many theories and models on economic growth that explain how the steady growth of the economy can be achieved.
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