Macro Economics

Macroeconomics deals with the aggregate economic variables of an economy. It also takes into account various interlinkages which may exist between the different sectors of an economy. This is what distinguishes it from microeconomics; which mostly examines the functioning of the particular sectors of the economy, assuming that the rest of the economy remains the same. Macroeconomics emerged as a separate subject in the 1930s by Keynes. The Great Depression, which dealt a blow to the economies of developed countries that were experiencing deflationary trends, had provided Keynes with the inspiration for his writings. Macroeconomics sees an economy as a combination of four sectors, namely households, firms, government and external sector. Macroeconomics tries to address situations facing the economy as a whole. Adam Smith, the founder of modern economics, suggested that if the buyers and sellers in each market take their decisions following only their own self-interest, economists will not need to think of the wealth and welfare of the country as a whole separately. But economists gradually discovered that they had to look further. Economists found that first, in some cases, the markets did not or could not exist. Secondly, in some other cases, the markets existed but failed to produce equilibrium of demand and supply. Thirdly, and most importantly, in a large number of situations society (or the State, or the people as a whole) had decided to pursue certain important social goals unselfishly (in areas like employment, administration, defence, education and health) for which some of the aggregate effects of the microeconomic decisions made by the individual economic agents needed to be modified. Macroeconomics shows two simple characteristics that are evident in dealing with the situations first who are macroeconomic decision makers and second what do the macroeconomic decision-makers try to do.