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Scope and Importance of macroeconomics in points class 12

The term Macro in English has its origin in the Greek term Makros which means Large. In the context of macroeconomics, 'large' means the economy as a whole. Thus, macroeconomics is defined as a branch of economics that studies economic activities including economic issues or economic problems) at the level of an economy as a whole. It focuses on issues such as output level, employment level, and price level in the context of the economy as a whole. It considers macroeconomic variables such as aggregate mand and aggregate supply. Aggregate demand refers to mand for all goods and services in the economy as a whole. aggregate supply refers to the output of all goods and services in theonomy as a whole.

Macroeconomics is concerned with the economy as a whole or large segments of it. In macroeconomics, attention is focused on such problems as the level of unemployment, the rate of inflation, the nation's total output, and other matters of economy-wide significance." -M.H. Spencer.

Scope and Importance of macroeconomics in points class 12

Scope of macroeconomics means the areas of study under macroeconomics. Macroeconomics largely deals with the following areas of study:

(1) Theory of National Income: Macroeconomics studies the concept of national income, its different elements, and the methods of measurement.

(2) Theory of Employment: Macroeconomics studies problems relating to employment and unemployment. It studies different factors determining the level of employment, viz., aggregate supply, aggregate consumption, aggregate investment, aggregate saving, etc.

(3) Theory of Money: Changes in demand and supply of money have an important impact on the level of employment. Macroeconomics, therefore, studies the functions of money and theories relating to it.

(4) Theory of General Price Level: Determination of general price level is also studied under macroeconomics. Problems relating to inflation and deflation are an important component of macroeconomics.

(5) Theory of Economic Growth: Problems relating to economic growth is another important component of macroeconomics. Monetary and fiscal policies of the government are also studied therein.

(6) Theory of International Trader Macroeconomics studies issues relating to international trade. Export, import, exchange rate, and balance of payments are the principal issues in this context.

Macroeconomic Variables
Macroeconomic variables are those economic variables that are studied at the level of the economy as a whole. These variables are important components of the subject matter of macroeconomics. The important ones are:

Importance of macroeconomics

  • level of employment in the economy,
  • national income, - aggregate demand,
  • aggregate supply, -consumption expenditure in the economy, and
  • investment expenditure in the economy


Q. How does Macroeconomics Differ from Microeconomics?

Basis of the Study
Microeconomics studies problems of scarcity and choice at the level of an individual, a household, a firm, or an industry. Macroeconomics studies problems of scarcity and choice at the level of an economy as a whole.

Illustration

Microeconomics studies problems such as:
  • consumers' behavior and equilibrium,
  • producers' behavior and equilibrium.
  • Macroeconomics studies problems such as:
  • unemployment in the economy,
  • the problem of price rise (inflation).
Degree of Aggregation
In microeconomics, there is a limited degree of aggregation of economic variables, compared to macroeconomics.

Illustration

Microeconomics studies the equilibrium of an industry; it is an aggregation of all the firms producing a particular commodity. Macroeconomics studies the equilibrium of the economy as a whole; it in
involves the aggregation of all producing units in the economy.

However, important it is to note that to examine structural change in the economy, macroeconomics also studies the ap level of economic activity in the agricultural sector, industrial sector fo and services sector, separately.

Different Set of Assumptions
Assumed as constant in microeconomics, is not constant in macroeconomics, and vice versa.

Illustration
In microeconomics, total output and employment are taken as constant, but not in macroeconomics. In macroeconomics, the distribution of income is taken as constant, but not in microeconomics.

Central Issue
The allocation of resources is the central issue in microeconomics. On the other hand, the level of output (and employment) is the central issue in macroeconomics.

Method of Study
Method of study in macroeconomics is often described as 'general equilibrium analysis. On the other hand, the method of study of microeconomics is often described as 'partial equilibrium analysis.

Micro-Macro Paradox
logical at the micro level may not be logical at the macro level.

Illustration
If an individual saves more, he adds to his future prosperity. If all the people in an economy save more (and spend less). demand for goods and services may decline. Consequently, the investment may decline; production and employment levels may fall. the economy will be driven towards future poverty rather than prosperity.

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