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Guide on How to Write University Essays, Courseworks, Assignments and Dissertations

Macroeconomics

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There are many accepted definitions of macroeconomics by different commentators but a simple and comprehensive definition is that macroeconomics is “a branch of economics that studies how individuals, households and firms makes decisions to allocate limited resources” (ca.uky.edu [online]).  It is a branch of economics that takes into account all the economic units at the individual level, at corporate level and at the national income level. Primarily, macroeconomics involves analyzing treads on national income, unemployment, inflation, investment in international trade and the effects of all these phenomena to the whole economy. Usually, the policy makers strive to maintain some stability on the macroeconomic policy as a way of promoting economic growth and reducing poverty by keeping the inflation down as well as unemployment. This is done though various monetary and fiscal policies.

 

Monetary macroeconomic policy instruments are the rate of interest and money supply, while the fiscal policy instruments involve change in taxation and public spending. The household sector is responsible for consumption in an economy and the private sector is responsible for the production. The government also plays a major part in that government procurement constitutes a huge part of the total expenditure in an economy. Government also regulates the economic activities. Sometimes macroeconomic goals may seem to conflict each other. For instance, policy makers may want to keep the inflation low and the same time keep production high. That may be tough when some sectors may be recording high prices, like the oil sector.

 

Macroeconomics should be contrasted with microeconomics which is the study of behaviour of individual markets, workers, households and corporations. Although the exact relationship between macroeconomics and microeconomics is not precisely understood, it is generally accepted that macroeconomic phenomena are the product of all the microeconomic activities in a given economy (Economist 2007[online]).

 

Some macroeconomic principals may perplex non-economists, like the fact that unemployment may not necessarily be bad for the economy. If everybody was employed, the productivity level might go down as firms do their best to retain their workers, who would have no one to replace them with. Further, a certain degree of unemployment reflects that there are a certain individuals seeking new opportunities for their own good, and this might improve the macroeconomic welfare of the whole economy.

 

Policy makers may not always a freehand over the macroeconomic variables (Fratiani, et al, 1997). Macroeconomic policy of an economy maybe influenced by much larger economies, such as the United States or the European Union. The emergence of international trade as a key engine of growth for many economies means there is more and more interdependence among nations.

 

The shortfall of macroeconomic theory is that it is very representative and assumes that the whole population in a given economy is homogenous (Prachowny, 1994). While the assumption of homogeneity may held in certain instances, it belies the potential conflict in policy choices. Domestic macroeconomic policy may not always be in sync with the external policy. Further, in labour market, whether one favours expansionary policies may depend whether the person in question is employed or not.

 

The politician who wins elections by shouting “I will give all of you jobs” probably needs to be educated more on macroeconomic goals than being elected to an office. Full employment maybe a laudable political aim but it is a macroeconomic anomaly.

 

 

References

 

1. URL http://www.ca.uky.edu/agc/pubs/ aec/aec75/aec75.htm. Last accessed 24 October 2007.

 

2. FRATIANNI MU, HAGEN JU, SALVATORE D (1997) Macroeconomic Policies in Open Economies Greenwood Press, London.

 

3. PRACHOWNY, MFJ (1994) The Goals of macroeconomic Policy. Routledge Publishers, Oxford.

 

4. URL http://www.economist.com/research/ Economics/alphabetic.cfm?letter=M.

Last accessed 24 October 2007.

 

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