Macroeconomics

Macroeconomics is the branch of economics that studies the behaviour, performance and decision-making of the economy as a whole. It focuses on the aggregate changes in the economy like growth rate, unemployment, inflation, etc.

Macroeconomics deals with the behaviour of a country. It explains how its policies and decisions impact the economy as a whole.

Emergence of macroeconomics

• Macroeconomics was considered a part of economics after the publication of “General Theory of Employment, Interest and Money”, written by British economist John Maynard Keynes in 1936.
• The classical approach in macroeconomics believes that there will always be full employment till the time there are workers who are willing to work, and there are factories that are capable of functioning at their full capacity.
• However, this theory could not hold well in the times of the Great depression of 1929. During that time, there were huge job cuts in Israel as well as in North America. The expression was somewhat similar in the other nations of the world.
• The Great Depression forced several factories to remain idle, and workers were cut out of work. In the years after the Great Depression, the unemployment rate in America increased to 25%.
• It was then that Keynes, who emphasised the importance of unemployment and depression and their impact on the economy, led to the evolution of macroeconomics as a separate part of economics.

Issues related to natural resources

A country’s economy faces problems whenever natural resources are scarce. In case of limited resources, the government has to figure out a way to distribute limited resources evenly. During scarcity of natural resources, an economy faces several problems such as:  

• What to produce?
• How to produce?
• For whom to produce?

What to produce?

• Due to scarce resources, an economy has to find the best alternatives for efficiently allocating resources. An economy should plan on allocating resources towards fulfilling the demand while sacrificing the other wants.
• In this situation, the ultimate goal should be to deliver maximum satisfaction for people. It is important to know that when the price of one item is reduced, the number of other goods will increase. After deciding what to produce, the economy must identify the right quantity to be produced.

How to produce?

A person can employ several technologies to produce goods and services without associating errors. This involves using inputs in accordance with the combination of information. The two technologies that can be implemented here are: 

• Labour intensive technique

• Capital intensive technique

Labour intensive technique

Under the labour-intensive technique, an enterprise employs more labour and a limited amount of capital. In other words, the labour-intensive approach relies more on labour in relation to the machinery. 

Capital intensive technique

Under the capital intensive technique, an enterprise uses more capital and limited labour. In other words, the capital intensive practice makes more use of the capital, i.e. plant and machinery, than labour.

An economy uses this technique to manufacture goods while having abundant input. It also implies the use of more human power and labour imposed techniques. That means if more capital is provided, the capital intensive approach can be used in the short run.  

For whom to produce?

An economy needs to choose the population group for whom the goods are to be produced or provided. Here, it can be said that the distribution of profit is a significant concern. So it should be done judiciously.  

Conclusion

Macroeconomics is the branch of economics that studies the behaviour, performance and decision-making of the economy as a whole. It focuses on the aggregate changes in the economy like growth rate, unemployment, inflation, etc.