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Scope and Importance of Macro Economics

Written By Fathimath Sama on Saturday, 22 June 2013 | 14:17

Macro economics is of theoretical and practical importance. They are:

1. To Understand the Working of the Economy:

The study of macro economics variables is indispensable for understanding of the working of the economy. Our main economic problems are related to the behaviour of total income, output, employment and the general price level in the economy. These variables are statistically measurable, thereby facilitating the possibilities of analyzing the effects on the functioning of the economy. As Timbergen observes, macro economic concepts help in,” making the elimination process understandable and transparent”. For instance, one may not agree on the best method of measuring different prices, but the general price level is helpful in understanding the nature of the economy.

2. In economic Policies:

Macro economics is extremely useful from the point of view of economic policy. Modern governments, especially of the underdeveloped countries, are confronted with innumerable national problems. They are the problems of overpopulation, inflation, balance of payments, general under-production etc. The main responsibility of these governments rests in the regulation and control of overpopulation general prices, general volume of trade, general output etc. Timbergen says, "Working with macro economics concepts is a bare necessity in order to contribute to the solutions of the great problems of our times". No government can solve these problems in terms of individual behaviour. 

Macroeconomic study helps in the solution of certain complex economic problem like:

a) General Unemployment:

The Keynesian theory of employment is an exercise in macro economics. The general level of employment in an economy depends upon effective demand which in turn depends on aggregate demand and aggregate supply functions. Unemployment is thus caused by decrease in effective demand. In order to eliminate it, effective demand should be raised by increasing total investment, total output, total income and total consumption. Thus, macro economics has special significance in studying the causes, effects and remedies of general unemployment.

b) National Income:

The study of macro economics is very important for evaluating the overall performance of the economy in terms of national income. With the advent of the great depression of the 1930s it became necessary to analyse the causes of general unemployment. This led to the construction of the data on national income. National income data help in forecasting the level of economic activity and to understand the distribution of income among different groups of people in the economy.

c) Economic Growth:

The economics of growth is also a study in macro economics. It is on the basis of macro economics that the resources and capabilities of an economy are evaluated. Plans for the overall increase in national income, output, and employment, are framed and implemented so as to increase the level of economic development of the economy as a whole.

d) Monetary Problems:

It is in terms of macroeconomics that monetary problems can be analyzed and understood properly.  Frequent changes in the value of money-inflation or deflation- affect the economy adversely. They can be counteracted by adopting monetary, fiscal and direct control measures for the economy as a whole.

e) Business Cycles:

Further macro economics as an approach to economic problems started after the great depression. Thus its importance lies in analyzing the causes of economic fluctuations and in providing remedies.

f) For Understanding the Behaviour of Individual Units:

Macro economics helps in the understanding the behaviour of individual units. Demand for individual products depends upon aggregate demand in the economy. Unless the causes of deficiency in aggregate demand are analyzed, it is not possible to understand fully the reasons for a fall in the demand of individual products. The reasons for increase in costs of a particular firm or industry cannot be analyzed without knowing the average cost conditions of the whole economy. Thus, the study of individual units is not possible without macro economics. Thus macro economics enriches our knowledge of the functioning of an economy by studying the behaviour of national income, output, investment, saving and consumption. Moreover, it throws much light in slowing the problems of unemployment, inflation, economic instability and economic growth.


Notes provided by Prof. Sujatha Devi B (St. Philomina's College)
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