What is macroeconomics and microeconomics?

Macroeconomics is an important part of a unified economic theory. Its principles are used by the state to stabilize the market during cyclical crises and recessions. Scientists have been studying for several decades what macroeconomics is. The definition of John Keynes remains classical and generally accepted.

Theory of Keynes

In the 20th century a new method of studying the national economy appeared. Researchers began to consider the economy of one country as a whole. So what is macroeconomics? It is a science that studies a national economy within the framework of a single complex system. This approach was finally formed quite recently, although some of its features were present in the works of the classics of political economy (Adams, Marx, etc.).

This independent science originated in the 30s of the XX century. Most of all, it is related to the discoveries and activities of the English explorer John Maynard Keynes. His theory was inspired by the events of that stormy era. In the late 1920s, the Great Depression took place , which entailed financial crises in the United States and European countries. It became clear that the usual economic system of market relations failed. The age of the scientist was challenged.

Macroeconomics and microeconomics

John Keynes formulated what is macroeconomics in his book The General Theory of Employment, Interest and Money, published in 1936. It was from that moment that the development of a new scientific discipline began. But even half a century before macroeconomics appeared microeconomics. It does not study the entire economy as a whole, but the decisions of specific market participants. Also microeconomics explores the problems of pricing. The scope of its analysis includes mechanisms for the use of limited resources.

So, microeconomics is devoted to individual economic units, while macroeconomics studies the entire national economy as a whole. Keynes in his program work explained what concepts and phenomena are most important for his new theory. This is the gross domestic product, inflation, unemployment and the average price level. An analysis of all this makes it possible to understand what macroeconomics is. The definition emphasizes that this is an independent science. Nevertheless, one can not say that macroeconomics and microeconomics exist independently of each other. They are two branches of a unified scientific theory and therefore interact in many ways with each other.

Criticism of classical political economy

To understand what is micro- and macroeconomics, it is necessary to look at the theory they were opposed to. And it was in the law of markets, which was formulated by Jean-Baptiste Say. He was a French economist who belonged to the classical school of political economy, the peak of which came at the beginning of the XIX century.

The essence of its main law boils down to the fact that the sale of goods forms income, which, in turn, is the foundation for the formation of a new demand. This conclusion extended to national economies in general, up to the time when the book of John Keynes was published. The scientist analyzed the global crisis in the late 1920s and came to the conclusion that the mechanisms that Say formulated in modern conditions do not work.

State intervention in the economy

Keynes believed that the spontaneous market is unpredictable. Therefore, the scientist advocated the strengthening of state regulation of the economy. What is macroeconomics in this context? It is an instrument of the state necessary for analyzing the state of the national economy. The authorities can use macroeconomic methods to properly regulate its state.

Keynes's ideas have found a response at the highest level. In the 1960s, his theses formed the basis for the economic policies of the United States, Britain, Canada and Sweden. All these countries today have a high standard of living and financial stability. There is in this well-being and the merit of macroeconomics as an applied science.

Structure of macroeconomics

The division of a single economy into markets best shows what macroeconomics is. This science distinguishes in the overall economy several different parts from each other. The first market is the market of factors of production. He is the most important. These include resources such as land, labor, financial and physical capital. Some scholars also include the totality of human talents and skills in the society to this list.

The next market is the market of services and goods. This is an important subject of macroeconomics. What it is? This includes the production of goods and services, that is, in other words, the formation of demand and supply - the main engines of any economy. Real values are exchanged here, so this market is called real.

Another important part of macroeconomics is finance. They are used in the money market and the securities market. Here, capital is mobilized, loans are provided, and exchange operations are carried out. The so-called continental model of the financial market is oriented to securities, insurance companies, pension and investment funds.

Economic cycles

Macroeconomic theory introduced the term of economic cycles into scientific use . They represent cyclical fluctuations - recessions and upsurge in the development of the economy. Economic cycles are available in any system. They have several stages - peak, recession and bottom. The fluctuations in business activity may be irregular and unpredictable.

Scientists who have studied what macroeconomics and microeconomics are, have identified the main causes of such cycles. These can be revolutions, wars, a change in the mood of investors, etc. All this affects the balance between supply and aggregate demand. The nature and nature of economic cycles are directly related to macroeconomic phenomena such as unemployment and inflation.

Overheating of the economy

Theorists also proposed the term "overheating of the economy." This state represents a situation when the country achieves the maximum of its financial possibilities. Because of this, strangely enough, there can be inflation and a significant price increase.

They, in turn, often cause economic recession and cyclical unemployment. If a similar situation exists in the country, the state must intervene in it. It is the theoretical foundations of macroeconomics that can come to the authorities for help. Keynes and his followers studied the positive experience of overcoming the crisis. Many of the principles they formulated were used by different states during the recession. A set of measures to recover the economy - that's what macroeconomics and microeconomics are. The definition of these disciplines is in each thematic textbook.

Fiscal and Monetary Policy

States in which the authorities are well aware of what macroeconomics is, are successfully coping with cyclical crises. The stabilization policy necessary to mitigate the effects of a recession is called fiscal and monetary policy.

What is their difference? In the twentieth century, theorists formulated what fiscal policy and monetary macroeconomics are. The state can reduce taxes or increase own purchases in the market. Such stabilization measures are fiscal policy. It has its drawbacks. In particular, they consist in the fact that the state can incur serious losses and stay with a budget deficit.

Monetary policy uses other methods to stabilize the economic situation in the country. For this, the Central Bank is used. He can release additional money on the market. The advantage of monetary policy over fiscal policy is that when it is conducted, the banking system reacts much more quickly to changes. This allows the economy to get out of the crisis earlier. This course is more profitable for the population also because in this case more consumer loans are issued. The main goal of monetary policy can be called ensuring price stability, productive growth and full employment in the society.