Macroeconomics is an important part of a singleeconomic theory. Its principles are used by the state to stabilize the market during cyclical crises and recessions. Scientists have been studying what macroeconomics is for several decades. The definition of John Keynes remains classic and generally accepted.
Theory of Keynes
In the XX century, a new method of learningnational economy. 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 features were present in the works of the classics of political economy (Adams, Marx, etc.).
This independent science originated in the 30syears of XX century. Most of all it is connected with the discoveries and activities of the English researcher John Maynard Keynes. His theory came under the impression of the events of that turbulent era. At the end of the 1920s, the Great Depression took place, causing financial crises in the United States and European countries. It became clear that the usual economic system of market relations had failed. Epoch challenged scientists.
Macroeconomics and Microeconomics
John Keynes formulated whatmacroeconomics, in his book The General Theory of Employment, Interest and Money, published in 1936. It was from that moment that the development of a new scientific discipline began. But half a century before macroeconomics, microeconomics appeared. It studies not the entire economy as a whole, but the decisions of specific market participants. Microeconomics also explores pricing issues. The scope of its analysis includes mechanisms for the use of limited resources.
So microeconomics is dedicated to individualeconomic units, while macroeconomics studies the entire national economy as a whole. Keynes in his software work explained what concepts and phenomena are most important for his new theory. These are gross domestic product, inflation, unemployment and the average price level. An analysis of all this makes it possible 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 in many ways with each other.
Criticism of classical political economy
To understand what micro and macroeconomics are,it is necessary to look at the theory with which they were contrasted. And it was in the law of markets, which was formulated by Jean-Baptiste Say. It was a French economist who belonged to the classical school of political economy, the peak of which fell on the beginning of the 19th century.
The essence of its main law is thatthe sale of goods generates revenues, which, in turn, are the foundation for the formation of new demand. Such a conclusion extended to national economies as a whole, up to the moment when the book of John Keynes was published. The scientist conducted an analysis of the global crisis in the late 1920s and concluded that the mechanisms that Say had formulated do not work under current conditions.
State intervention in the economy
Keynes believed that the spontaneous market is unpredictable.Therefore, the scientist advocated the strengthening of state regulation of the economy. What is macroeconomics in this context? This is a state tool necessary for analyzing the state of the national economy. The authorities can use macroeconomic methods to properly regulate its condition.
Ideas of Keynes found a response at the highest level.In the 1960s, his theses formed the basis of the economic policies of the United States, Great Britain, Canada, and Sweden. All these countries today have a high standard of living and financial stability. There is in this well-being and merit of macroeconomics as an applied science.
Macroeconomic structure
Dividing a single economy into markets bestshows what macroeconomics is. This science identifies in the general economy several distinct parts. The first market is the market of factors of production. He is the most important. This includes such resources as land, labor, financial and physical capital. Some scientists also include the totality of human talents and skills in society.
Следующий рынок – рынок услуг и товаров.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. Here real values are exchanged, therefore this market is called real.
Another important part of macroeconomics is finance.They are used in the money and securities markets. Here capital is mobilized, loans are provided, exchange operations are carried out. The so-called continental model of the financial market focuses on securities, insurance companies, pension and investment funds.
Economic cycles
Macroeconomic theory put into scientific useterm business cycles. They are cyclical fluctuations - ups and downs in the development of the economy. Business cycles are available in any system. They have several stages - peak, recession and bottom. Fluctuations in business activity can be irregular and unpredictable.
Ученые, которые исследовали, что такое macroeconomics and microeconomics, identified the main causes of such cycles. These can be revolutions, wars, changes in investor sentiment, etc. All this affects the balance between supply and aggregate demand. The nature and nature of economic cycles are directly related to such macroeconomic phenomena as unemployment and inflation.
Overheating economy
Theorists also suggested the term “overheatingeconomy. This state represents a situation when a country achieves the maximum of its financial capabilities. Because of this, oddly enough, inflation can occur and a significant increase in prices.
They, in turn, often causeeconomic recession and cyclical unemployment. If a similar situation is observed in a 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 different states during a recession. The totality of measures for the recovery of the economy is what macroeconomics and microeconomics are. The definition of these disciplines is in each thematic textbook.
Fiscal and monetary policy
States in which the authorities are well aware thatis macroeconomics, successfully coping with cyclical crises. The stabilization policy needed to mitigate the effects of a recession is called fiscal and monetary policy.
What is their difference?In the 20th century, theorists formulated what is fiscal policy and monetary macroeconomics. The state can reduce taxes or increase own purchases in the market. Such stabilization measures are fiscal policies. It has its drawbacks. In particular, they consist in the fact that the state can suffer serious losses and remain with a budget deficit.
Monetary policy uses other methods tostabilization of the economic situation in the country. To do this, use the Central Bank. It can put on the market additional money supply. The advantage of monetary policy over fiscal is that when it is conducted, the banking system reacts much faster to changes. This allows the economy to emerge from the crisis earlier. Such a course is also more profitable for the population because in this case more consumer loans are issued. The main goal of monetary policy is to ensure price stability, production growth and full employment in society.
