Business, Legal & Accounting Glossary
Macroeconomics (from the Greek prefix makro- meaning “large” + economics) is a branch of economics dealing with the performance, structure, behaviour, and decision-making of an economy as a whole.
It is the study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behaviour of prices.
Macroeconomics is the study of the behaviour of the overall economy.
As defined by Joseph Stiglitz, our confidence in macroeconomics is, “the ability to maintain full employment, price stability, and sustained growth”.
Thus macroeconomics focuses on broad-based indicators of national economic performance, like GDP output, the balance of trade, and employment levels. Macroeconomics can be contrasted against microeconomics, which is the study of the economic behaviour of the individual firm and consumer. Traditionally, in the United States, the study of macroeconomics has had two main schools. Put simply, the Keynesian school of macroeconomics focuses on total demand and looks to both fiscal policy (government spending levels) and monetary policy (money supply growth) for solutions. The Monetarism school of macroeconomics rejects fiscal policy as a means of managing the economy and looks to monetary policy exclusively for answers. These major schools of macroeconomics have now developed offshoot and successor movements, such as New Keynesian Economics and New Classical Macroeconomics. Macroeconomics has major consequences for investors, as company earnings models are heavily dependent on growth in the overall economy, and bond (and, to a lesser extent, stock) prices are strongly determined by the level of interest rates.
The aggregate supply-aggregate demand model identifies both the price level and output level in an economy that is in equilibrium. This is a key concept to understanding macroeconomics. This is not the same as the usual supply and demand models from microeconomics.
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This glossary post was last updated: 30th March, 2020