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What is 'Macroeconomics'

Macroeconomics is a branch of the economics that studies how the aggregate economy behaves. In macroeconomics, a variety of economy-wide phenomena is thoroughly examined such as inflation, price levels, rate of growth, national income, gross domestic product (GDP) and changes in unemployment.

BREAKING DOWN 'Macroeconomics'

There are two sides to the study of economics: macroeconomics and microeconomics. As the term implies, macroeconomics looks at the overall, big picture scenario of the economy. Put simply, it focuses on the way the economy performs as a whole. This includes looking at variables like unemployment, GDP and inflation. The government uses these factors and models to help develop its own economic policies. Through central banks, the government will come up with its fiscal and monetary policies to keep the economy in check. On the other hand, microeconomics looks at the behavior of individual factors in an economy (like people, households, industries, etc). We'll look at the differences a bit more later. 

The Study of Macroeconomics

Those working in the field of macroeconomics study aggregated indicators such as unemployment rates, GDP and price indices, and then analyze how different sectors of the economy relate to one another to understand how the economy functions.

Macroeconomists develop models explaining relationships between a variety of factors such as consumption, inflation, savings, investments, international trade and finance, national income and output. Such macroeconomic models, and what the models forecast, are used by government entities to aid in the construction and evaluation of economic policy.

Specific Areas of Research

Macroeconomics is a rather broad field, but two specific areas of research are representative of this discipline. One area involves the process of understanding the causation and consequences of short-term fluctuations in national income, also known as the business cycle. The other area involves the process by which macroeconomics attempts to understand the factors that determine long-term economic growth, or increases in the national income.

History of Macroeconomics

Macroeconomics, as it is in its modern form, started with John Maynard Keynes and the publication of his book "The General Theory of Employment, Interest and Money" in 1936. Keynes offered an explanation for fallout from the Great Depression, when goods remained unsold and workers unemployed, a feat that left classical economists stumped. Keynes' theory explained why markets may not clear. This theory evolved throughout the 20th century, diverting into several macroeconomic schools of thought known as Keynesian economics, often referred to as Keynesian theory or Keynesianism.

Macroeconomics vs. Microeconomics

Macroeconomics differs from microeconomics, which focuses on smaller factors that affect choices made by individuals and companies. Factors studied in both microeconomics and macroeconomics typically have an influence on one another. For example, the unemployment level in the economy as a whole has an effect on the supply of workers from which a company can hire. Macroeconomics, in its most basic sense, is the branch of economics that deals with the structure, performance, behavior and decision-making of the whole, or aggregate, economy, instead of focusing on individual markets.

Meanwhile, microeconomics looks at economic tendencies, or what can happen when individuals make certain choices. Individuals are typically broken down into subgroups, such as buyers, sellers and business owners. These actors interact with the supply and demand for resources, using money and interest rates as a pricing mechanism for coordination.

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