What is Macroeconomics?
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Macroeconomics is a branch of economics concerned with the behavior and performance of the economy as a whole.
It stands in contrast with microeconomics, which focuses on the impact at an individual, group, or company level.
Macroeconomics primarily studies large-scale economic phenomena like inflation, price levels, rate of economic growth, national income, gross domestic product (or GDP), and changes in unemployment.
Macroeconomics in its modern form is thought to have originated from John Maynard Keynes (pronounced “Canes”) and his 1936 book The General Theory of Employment, Interest and Money.
There are two distinct areas of macroeconomic research: long-term growth and short-term business cycles.
Long-term macroeconomics focuses on topics over many years like national income and overall changes in employment while short-term macroeconomics looks at factors affecting the economy on a smaller time frame known as business cycles.
Macroeconomics attempts to explain the relationship between these factors and the magnitude each factor affects the economy as a whole.
Like most things which are complex, opposing macroeconomic views have developed.
For example, those in favor of expansionary monetary policy such as low interest rates are known as “doves,” while those in favor of “tight” monetary policy are known as “hawks.”
Lowering the federal interest rate makes it cheaper to borrow money which may incentivize people to invest more.
While this may stimulate the economy, it can also have adverse consequences such as higher inflation rates.
While both views attempt to pursue higher economic growth while controlling inflation rates, hawks and doves disagree on the best way to accomplish these goals.
People’s beliefs about the relationship between macroeconomic factors affects both monetary and fiscal policies.
Monetary policies relate to changing the interest rate and influencing the total money supply, hence the term “monetary.”
Fiscal means “government revenue,” so fiscal policies are related to the government such as changing tax rates and government spending.