1. What Is Macroeconomics?
Microeconomics is the study of the behavior of individual economic agents. Microeconomics asks how individuals allocate their time, income and wealth among various opportunities for labor, leisure, consumption, and savings. Microeconomics also studies the process by which individual firms decide on output levels, possibly prices, and the resources that will be used in the production process.
Macroeconomics, on the other hand, is concerned with the economic issues that involve the overall economic performance of the nation, rather than that of particular individuals or firms. Macroeconomics does implicitly deal with the behavior of individual economic agents in the sense that national outcomes are the sum of individual actions. But macroeconomics deals with totals, or aggregate measures of the economy, like national income or average unemployment rates, rather than differences among individuals. Macroeconomics asks how economic aggregates are determined, why problems related to aggregate economic performance occur, and what government can and should do about such problems.
|“Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing.”Alfred Marshall, Principles of Economics (1890) Book 1, Chapter 1.
The full text of this book is available from the History of Economic Thought web site.
|Macroeconomics – analysis of the behavior of an economy as a whole.Microeconomics – analysis of the behavior of individual decision-making units (individuals, households, firms).|
2. Macroeconomic Goals
One objective of macroeconomics is to develop better laws and government policies to maximize the welfare of society. More specifically, economists focus on several major goals, such as:
- a low rate of unemployment
- price stability
- economic growth
This is far from an exhaustive list. Some economists may give higher priority to other goals such as an equitable distribution of income, elimination of the government budget deficit, balanced foreign trade, economic efficiency, reduction of pollution, economic security, and so on. Nevertheless, we highlight these three goals because these are the primary subjects of this course.
- Low Unemployment Rate
Unemployment is a very personal problem. A high unemployment rate may mean the job you had was eliminated, the job you have is less secure, or the new job opportunities you hope to consider may not exist. For the macroeconomist unemployment represents a societal problem — unemployed workers do not produce goods and services but they continue to consume them.