Macroeconomics, definition and its scope.

 

What is Macroeconomics?

The term macroeconomics is defined from the Greek word ‘makros’ which means ‘large’. Macroeconomics is the large unit of economics or the economy as a whole. This unit tells us about the entire economy of our country. Macroeconomics also involves the theory of the income distributions and the problem of unemployment as the unemployment becomes a great problem for many people by making people jobless. Some people do not want to accept the job because they show laziness. 

What does Macroeconomics tell us about Propensities?

Now income involves two types of propensities: (1) propensity to consume (ii) propensity to save. In propensity to consume it tells that the proportion of income which is devoted to the consumption whereas propensity to save is the part of income which the consumers save.

 Macroeconomics tells us about the equilibrium between the income and output by two approaches (i) saving investment approach and the (ii) is aggregate demand and aggregate supply. It also gives the example of investment multiple which is defined as “multiple times the investment increases as an increase in investment expenditure. 

Money as a Source of Economy 

 Macroeconomics  tells us about the money which is the source of all economic activities. “Money is anything that can be easily acceptable as a means of exchange and can be helpful in the transfer or act as a medium of exchange”. Money is the easiest and the simplest way of buying anything. 

When the money was not invented, the barter system was there. In the barter system, the item is exchanged from another item. For example: a piece of cloth is exchanged to purchase 1kg of rice. Inflation is another term which is defined as the appreciable rise in the price of goods in the market. 

Categories of Money

Macroeconomics also tells us about the notes and currencies issued by the government. Government issues coins of higher dominations. One rupee note is issued by the central bank. It has the monopoly of issue notes that is why it is called the bank of issue. Other notes of higher denominations are issued by the Reserve Bank of India. 

Macroeconomics also tells fiscal policy and the monetary policy and the government budget of the government. The government makes the budget of all its debts, borrowings or spendings. Macroeconomics deals with the bigger issue of economy. 

Problem Faced by Economy

Sometimes the economy faces the depression or the recession period. Macroeconomics tells us about the fuller utilization of resources. It tells us about the flow chart sectors of the economy of the national income (i) household sector (ii) firm sector (iii) government sector (iv) foreign sector.

 It tells us about how the commercial bank earns profit. It also tells us about full employment in the economy. It tells us about the different sectors or the branches of the bank.

Macroeconomics as a balance of payment 

 Macroeconomics also gives us knowledge about the import and export of goods from one county to another country. It is known as balance of payment. It refers to the record of all the economic transactions held between two or more countries or the residents of the foreign countries. It has two accounts namely current account or capital account.

National Income Aggregates 

Macroeconomics tells us about the national income aggregates. These aggregates are of four types namely Gross Domestic Product (GDP), Gross National Product (GNP), Net Domestic Product (NDP) and the last Net National Product (NNP). Macroeconomics is a very wide term. It seeks to explain the economic Growth or the economic progress of the economy. 

Macroeconomics gives us information about that in national income the intermediate goods are not included as it is involved in the process of production but the national income is calculated by taking in the consideration of final goods and services. 

So, National income is defined as “the money value of all final goods and services produced by the normal residents of a country within the domestic territory of a country. 

Macroeconomics tells about public finance

Macroeconomics involves the process of taxation which the government take for the welfare of the people and there is no quid pro quo or something getting in return. There are two types of tax: (i) Direct tax or (ii) Indirect tax. 

Direct tax is the tax which is directly taken as a physical contribution on the part of the government from their income and salaries whereas Indirect tax is  the tax which is imposed on an individual but the burden is taken over by someone who ultimately bears it. Tax is a physical contribution given by all the people without any personal benefits. 

Government Budget in the Economy

 Macroeconomics also determines with the state various problems of the economy. It helps in the total analysis of the whole economy or identifying the various problems in the economy. Macroeconomics helps in providing the information about the customer demand and needs. It involves the transactions of the goods and services among various countries or outside the boundaries of the countries. 

Macroeconomics gives a wide information about all the activities taking place in the economy. 

Macroeconomics consist of four types of government budget that are: (1) union budget (ii) state budget (iii) performance budget (iv) supplementary budget. It also tells us about the cost and revenue of our economy. 

Exchange Rate in the economy

Microeconomics consist of the exchange rate which means that the currencies of one country will be exchanged from another country's currencies. For example if a person in London buys something in India then he should pay the money in Indian rupees. If a person of India earns in the foreign countries then the income earned by that person belongs to India or vice versa. 

Banks are another important tool of macroeconomics. Banks are of various types but there are two main banks that are (i) Commercial banks (ii) Central banks. Central bank is the apex body of all the financial institutions whereas a commercial bank is the profit earning body which does various functions like accepting deposits or discounting of bills etc.