Macroeconomics (from the prefix “macr (o) -” meaning “big” + “economy”) is a branch of economics that refers to the capacity, structure and behavior of a national or regional economy as a whole. Along with microeconomics, macroeconomics is one of the two most general fields in economics. It is the study of behavior and decision-making throughout the economy.
Macroeconomics is a discipline that is responsible for studying the behavior and aggregate development of the economy. When we speak of aggregate we refer to the sum of a large number of individual actions carried out by individuals, companies, consumers, producers, workers, State, etc., which make up the economic life of a country.
Macroeconomics is oriented to aggregate data, such as the level of production and the price level. It also focuses on specific markets that are relevant to the aggregate economy, such as the Labor Market and Capital Markets.
Macroeconomics, therefore, studies the total amount of goods and services produced in a given territory. It is often used as a tool for political management, as it allows to discover how to allocate (scarce) resources to boost economic growth and improve the well-being of the population.
It is an economic theory proposed by John Maynard Keynes published in 1936 in his work “General Theory of Employment, Interest and Money” product of the great depression that faced Great Britain and the United States in the year 1929. Keynes in his theory proposes the use of monetary and fiscal policies to regulate the level of aggregate demand. Keynes proposes in his theory the increase of the public expense to generate jobs to the point of reaching a balance.
Macroeconomists study aggregate indicators such as GDP, unemployment rates, price indices, and seek to understand how the economy as a whole works. Macroeconomists develop models that explain the relationship between factors such as national income, production, consumption, unemployment, inflation, savings, investment, international trade, and international finance. In contrast, microeconomics focuses primarily on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets.
In general, macroeconomic studies are carried out at the national level (that is, they study the economic phenomena occurring within a country based on the relationships that the internal actors maintain with each other and with the outside).
In order to have a global vision, macroeconomics does not study the actions of certain individuals or companies, but rather the tendency in the actions of all as a whole or, as previously mentioned, in aggregate form. However, although macroeconomics does not conduct studies on individual decisions, as microeconomics does, it is essential that it be consistent with these individual decisions, since the global trends in which macroeconomics is entrusted are the sum of millions of decisions.
Macroeconomics seeks mainly to study issues such as production, prices, international trade and unemployment. To develop its study and analysis of these issues, macroeconomics has developed some methodologies that, based on data collected, allow it to observe and measure changes and trends of the economy. With the use of concepts such as gross domestic product (GDP) (which together with gross national product [GNP] are important measures related to production), the unemployment rate (which facilitates the analysis of employment and unemployment issues), the rate of inflation (which facilitates the study of prices) and the trade balance (with which, for example, it can develop an analysis on international trade), macroeconomics can observe and measure such changes and trends.
Although macroeconomics is a broad field of study, there are two areas of research that are emblematic in the discipline: the attempt to understand the causes and short-term consequences of fluctuations in national income (the business cycle); attempt to understand the determinants of long-term economic growth (increase of national income).
Finally, macroeconomics seeks to understand the behavior of individuals, companies, families, workers, etc. when they have to face different economic situations. Likewise, it seeks to find the relationships between the different aspects that make up the economy (prices, consumption, production, unemployment, etc.) and, based on previous knowledge, generate and evaluate, with real data, theoretical proposals that allow explaining facts or situations in the future.