Macroeconomics

Macroeconomics
did not appear as a branch of economic study until the 1930’s, following the
celebrated work of John Maynard Keynes in 1936. Before that time, it was
believed, as claimed by the classical, that the price system will by itself
ensure the maximum utilization of all resources and there was thus no need for
any deliberate policy to manage the economy. This proposition worked fairly
well for some time. In 1929 however, there was a depression that visited Europe
and the United States of America characterized by low demand for goods and
services, falling prices, business closures and massive unemployment.

Keynes
work (The general theory of employment, interest and money, 1936) emerged as an
attempt to explain the reason for and proffer solution to the great depression
as it was called. More than that however, the work opened the door to another
field of economic study – the management of the nation’s economy. Macroeconomic
analysis begins with the recognition of the possibility of actual output
falling short of society’s potential output (that is, the possibility of
resource unemployment) and moves on to analyzing how society can enjoy a continuous
growth in potential output. Unlike microeconomics, in macroeconomics, concern
is on.
The
national economy rather than the individual units (such as the household or
firm)
Determination
of the general (aggregate) price level for all goods and services in the
economy rather than the determination of the price of individual goods
The
national (aggregate or societal) output rather than the output of the
individual firm
The
aggregate consumption, saving and investment in the economy rather than individual
household’s consumption and savings or investment by an individual firm.
Specifically,
macroeconomic analysis seeks to answer such question as:
What
determines the level of aggregate output and the general price level?
Hence,
what determines the level of employment in the society?
What
accounts for changes in these macroeconomic variables (i.e. aggregate output,
prices, employment, consumption, savings and investment)?
Hence,
how can we achieve stability in these variables?
How
can we achieve a sustainable rate of growth in potential output?

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