Importance and significance of macroeconomics

MACROECONOMICS:

Contrary to microeconomics, macroeconomics deals with the behavior or working of the whole economic

system in totality or the working of the whole economic system in totality or entirely. The study of the

aggregates and the averages cover the whole economy such as total investment, total consumptions,

aggregate supply, total savings, aggregate demand, general price level, and total employment.

        According to K. E. Boulding.

Macroeconomics deals not with individual quantities but with aggregates of these quantities not with

individual in combat.with the national income, not with individual prices but with the price level, and not with individual

labor but with the public affair.

In the words of prof. Gardner Ackley,

Macroeconomics usually deals with the study of the economic affairs of the dimensions of economic life.

It looks at the economic life of the total size, shape, and functioning of elephants. It can not work on the

articulation or dimension of its parts.

It studies the character of the forest, independently of the trees which compose it. Macroeconomics is also known as the theory of income, output, and employment. 

Scope of Fields Of Study or Ingredients Of Macroeconomics:

Macroeconomics covers the following fields of study:

1. Theory of national income

2. Determinants of national income

3. Theories of consumption

4. Theories of inflation and deflation

5. Monetary theory

6. Fiscal theory

7. Theory of economic growth

8. Theories of business fluctuations

9. Theory of international trade

The following advantages signify the importance and significance of macroeconomics

.

1. Serves as a sound base for the formulation of economic policies: 

 Macroeconomics provides a sound base on which a government can formulate required economic

policies. Since the main objective of such policies is to improve the overall situation of the economy,

the economy itself needs to be studied as a whole and not in parts. The economic policies for

removing poverty and enhancing employment and stability in price level must be based upon the

aggregative requirements. Thus, macroeconomics, through its aggregativevariables, can help in the formulation of appropriate government economic policies.

2. Helpful in understanding the workings of an economic system: 

The nature of the modern economic system is a very complicated one. To understand is real working

system, macroeconomics analysis is necessary. The study of national income, aggregate output, gross

saving, investment, national expenditure, etc. is very essential to understanding the proper functioning

of an economic system.

3. Helpful in the formulation of theories of economic development: 

Every country seeks rapid economic development. The most important role of macroeconomics in

this regard is to help in searching out the way and mean.Each country prefers to adopt its strategy for economic development suitable to its available natural

resources and the level of economic development. Macroeconomics analysis helps in the study of the

process of income generation and selecting the factors that may help accelerate economic growth. 

4. Helpful in tackling the inflation and deflation situations: 

These situations are related to the general price level which is the subject matter of macroeconomics.

The general price level is influenced by the changes in aggregate demand, aggregate supply, or output,

and also by other factors like money supply, etc. The analysis of these variables helps us understand

the nature of inflationary and deflationary situations and remedies to tackle them.

5. Helpful in estimating the overall performance of the economy: 

The concept of national income is an aggregate concept. It is a very significant concept of

macroeconomics because it helps in analyzing the overall performance of the economy. Total

national income is an aggregate of the sub-aggregates of different sectors. Hence, we can study

and compare the performance of different sectors of the economy.

6. Provides information about international economic affairs: 

Macroeconomics provides a base for information about international economic affairs.

Macroeconomic variables like national income, total output, aggregate demand, consumption

behavior, and investment patterns of different countries can easily be compared in the light of

information given by macroeconomics.

7. Helpful in developing microeconomic theories: 

The study of macroeconomics is essential for formulating and developing microeconomic theories.

Almost every microeconomic theory is based on a pre-study of aggregates of macroeconomics.

Limitations Of Macroeconomics

                   Though macroeconomics study is very useful in analyzing economic problems

related to the entire economy, there are also a few limitations that used to come in the way of

practical difficulties while formulating

meaningful aggregates. These main limitations are:

1)  Depending upon too much generalization: 

The macro study averages the results of microeconomics. This generalization may provide confusing

results because drawn conclusions that are true for individual or small units need not necessarily be

true for the economy as a whole For example, saving may be good for most families. But, if every

family intends to save, the level of consumption will decline. This situation will force industries to

cut down their production. The unemployment rate has increased because of this. Hence, the whole

economy will have to suffer.

2) Problems of measuring the aggregates: 

Due to the invention of money, macro analysis has become meaningful, yet the comparison of

economic aggregates like aggregate income, consumption, saving, investment, and other factors,

over a period, is difficult because the value of money itself is subject to change.

3) Varieties:

The aggregates drawn show an average tendency and therefore do not affect all the sectors in the

same way. For example, a rise in the general price level may not influence all the sectors of the

economy alike. Some of them may have good effects while some others may be adversely affected.

It may also be possible that all the sectors conform to the general conclusion but their degree of

effectiveness may be different.