Question

Write short notes on

2) Subject matter of Macro-Economics

Answer 1

Macroeconomics studies how an economy operates as a whole. It focuses on aggregate measures such as aggregate demand, aggregate supply and aggregate price level. It studies how these variables are determined and how they change over time. It helps us in understanding various economic relationships and economic problems at the economic or aggregate level. It is also known as the ‘Theory of Income and Employment’, as it studies how income and employment levels are determined. It also deals with major problems such as poverty, unemployment, inflation, balance of payments and BOP disequilibrium.
The following are the important macroeconomic theories:

i. Theory of income and employment: Macroeconomics explains the determination of national income and employment. In addition it also helps in analysing the cause and effect of fluctuations in them. For this, various concepts such as consumption function, investment function, business cycles are studied.

ii. Theory of general price level and inflation: Macroeconomics studies how the general level prices in an economy are determined and the effects of fluctuations on them. Such study is specifically important to understand and combat the effect of such problems as depression and recession.

iii. Theory of economic growth and development: Macroeconomic study helps in understanding the causes of underdevelopment and other socio-economic problems such as poverty and inequality in an economy. Accordingly, it helps in determining suitable policies to combat the same. Similarly, it helps to deals with such problems as underutilisation of resources, thereby, help in working towards increasing the productive efficiency in the economy.

iv. Macro theory of distribution: The study of macroeconomics helps in determining how the national income would be distributed among the various sections in the economy in the form of rent, wages, income and profit. Some of the important theories in this regard are given by Ricardo, Karl Marx, Kalecki, Kaldor.