Macroeconomics refers to the division within economics that concentrates its study on the workings of large national economies, or even regional economies, in their entirety. This field proves to be extremely general as a result.
It is mostly concerned with big picture measurements like the rates of unemployment, as well as with the developing of models whose purpose is to detail the various indicators’ correlations. An opposite to macroeconomics might be said to be microeconomics that focuses on the activities of individuals and businesses instead of bigger pictures and scales. Macroeconomics and microeconomics are considered to be complimentary studies.
Because of the Great Depression that occurred in the 1930’s, the study of macroeconomics evolved into a practical area of economics on which economists might concentrate their efforts. Up to that point, economists did not distinguish between the activities of individuals and businesses and an entire national economy. The most influential developers of macroeconomics proved to be those economists who made it their business to relate what had caused the Great Depression. The British economist John Maynard Keynes is among the chief of these economists who developed the study.
Until just a few decades ago, Keynes’ ideas on macroeconomics overshadowed the entire field. Followers of Keynesian thought depended on the concept of aggregate demand, or total demand, to grapple with hard questions in macroeconomics, like the way to explain what stood behind particular unemployment levels. Today, Keynesian models are not the underlying philosophy of macroeconomics any longer, as neoclassical economics has successfully challenged it. Still, the presently used models bear great influence of the Keynesian precursors.
To date, no one economic philosophy has come up with a single model that is able to correctly and totally reproduce the ways that economies literally work. This causes different economists to have varying understandings of economics. Because of this, gaining an understanding of macroeconomics involves studying the ideas of each major economic school of thought.
As a result of the field of macroeconomics, governments have taken proactive approaches to managing economic cycles and changes. They do this through governmental policies that are utilized to create changes with the goals of either avoiding or lessening the impacts of economic shocks, such as depressions. This management of large national economies is affected in practical terms through two types of government policies. These are monetary and fiscal policies. Monetary policies involve the governmental control of the nation’s money supply and the national interest rate levels. Their goals are both stable prices with low inflation and low unemployment levels.
Fiscal policies are amounts of spending that a government engages in, as well as taxes that they collect, to influence the economy. For example, the government can expand the economy by spending a good deal more money than it collects in tax revenues. It might similarly contract economic activity by spending less money than it actually brings in from taxes. Besides this, a government can stimulate the economy by cutting tax rates, or shrink the economic activity levels by raising tax rates.