Macroeconomic

Macroeconomics

Macroeconomics is a branch of economics that studies how the aggregate economy behaves. In macroeconomics, a variety of economy-wide phenomena are thoroughly examined such as inflation, national income, gross domestic product (GDP), and changes in unemployment. Macroeconomics differs from microeconomics, which focuses on individual consumers and businesses.

Key Concepts

Gross Domestic Product (GDP)

Gross Domestic Product is the total value of all goods and services produced over a specific time period within a nation's borders. It is a comprehensive measure of a nation’s overall economic activity. GDP can be calculated using three approaches: the production approach, the income approach, and the expenditure approach.

Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.

Unemployment

Unemployment is a measure of the number of people who are actively looking for work but aren't currently employed. The unemployment rate is a key indicator of economic health.

Fiscal Policy

Fiscal policy involves the use of government spending and tax policies to influence economic conditions, including demand for goods and services, employment, inflation, and economic growth.

Monetary Policy

Monetary policy is the process by which a central bank, such as the Federal Reserve, manages the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Theories and Models

Keynesian Economics

Keynesian economics is an economic theory of total spending in the economy and its effects on output and inflation. Developed by John Maynard Keynes during the 1930s in an attempt to understand the Great Depression, Keynesian economics advocates for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression.

Classical Economics

Classical economics is a school of thought in economics that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. Its major developers include Adam Smith, David Ricardo, and John Stuart Mill.

Monetarism

Monetarism is a school of thought that emphasizes the role of governments in controlling the amount of money in circulation. Monetarists believe that variations in the money supply have major influences on national output in the short run and the price level over longer periods.

Applications

Macroeconomic analysis is used by governments to develop economic policy. It is also used by businesses to understand the economic environment and make strategic decisions. For example, understanding macroeconomic trends can help businesses forecast demand for their products and services.

Also see

• Microeconomics
• Economic policy
• Business cycle
• Supply and demand
• Inflation
• Fiscal policy
• Monetary policy