Macroeconomics is a branch of economics that deals with the performance, structure, and behavior of a national or regional economy as a whole. Economics is the social science that studies the production distribution, and consumption of goods and services. An economy is the realized social system of production exchange distribution and consumption of goods and services of a country or other area ^[1] Along with microeconomics, macroeconomics is one of the two most general fields in economics. Microeconomics is a branch of Economics that studies how individuals households and firms and some states make decisions to allocate limited resources typically in markets Economics is the social science that studies the production distribution, and consumption of goods and services. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indexes to understand how the whole economy functions. Unemployment occurs when a person is available to work and currently seeking work but the person is without work. A price index ( plural: “price indices” or “price indexes” is a normalized Average (typically a ''weighted'' average) of Prices for a Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance. Output in Economics is the total value of all of the goods and services produced in an entity's economy Unemployment occurs when a person is available to work and currently seeking work but the person is without work. In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time In common usage saving generally means putting money aside for example by putting money in the bank or investing in a Pension plan Investment or investing is a term with several closely-related meanings in Business management, Finance and Economics, related to saving International trade is exchange of Capital, Goods, and Services across International borders or Territories. International finance is the branch of economics that studies the dynamics of Exchange rates, Foreign investment, and how these affect International trade In contrast, microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets. Microeconomics is a branch of Economics that studies how individuals households and firms and some states make decisions to allocate limited resources typically in markets Price in Economics and Business is the result of an exchange and from that trade we assign a numerical Monetary value to a good,

While macroeconomics is a broad field of study, there are two areas of research that are emblematic of the discipline: the attempt to understand the causes and consequences of short-run fluctuations in national income (the business cycle), and the attempt to understand the determinants of long-run economic growth (increases in national income). In Economics, the concept of the short-run refers to the decision-making time frame of a firm in which at least one Factor of production is fixed The term business cycle or economic cycle refers to the fluctuations of economic activity during its long term growth trend In economic models the long-run time frame assumes no fixed Factors of production. Economic growth is the increase in the amount of the goods and services produced by an economy over time

Macroeconomic models and their forecasts are used by both governments and large corporations to assist in the development and evaluation of economic policy and business strategy. A model in Macroeconomics is a logical mathematical and/or computational framework designed to describe the operation of a national or regional economy and especially the Economic policy refers to the actions that Governments take in the economic field.

Contents 1 Development of macroeconomic theory 1.1 Classical economics and the quantity theory of money 1.2 Keynesianism 1.3 After Keynes 2 Analytical approaches 2.1 Schools 3 Macroeconomic Policies 4 Notes 5 References 6 See also

Development of macroeconomic theory

The first published use of the term "macroeconomics" was by the Norwegian Economist Ragnar Frisch in 1933^[2] and before this, there already was an effort to understand many of the broad elements of the field. Norway ( Norwegian: Norge ( Bokmål) or Noreg ( Nynorsk) officially the Kingdom of Norway, is a Constitutional Ragnar Anton Kittil Frisch ( March 3, 1895 January 31, 1973) was a Norwegian Economist.

Classical economics and the quantity theory of money

Main article: quantity theory of money

Until the early twentieth century, the quantity theory of money dominated as the favored macroeconomic model among classical economists. In Economics, the quantity theory of money is a theory emphasizing the Positive relationship of overall prices or the nominal value of expenditures to the In Economics, the quantity theory of money is a theory emphasizing the Positive relationship of overall prices or the nominal value of expenditures to the Classical economics is widely regarded as the first modern school of economic thought. ^[3] This theory gives the equation of exchange:

The equation states that the money supply times the velocity of money (how quickly cash is passed from one person to another through a series of transactions) is equivalent to nominal output (price level times quantity of goods and services produced). In Economics, the equation of exchange is the relation M\cdot V = P\cdot Q where for a given period M\ is the total Classical economists, such as Irving Fisher assumed that real income and the velocity of money would be static in the short-run, so, based on this theory, a change in price level could only be brought about by a change in money supply. Irving Fisher ( February 27 1867 Saugerties, New York &ndash April 29 1947, New York was an American economist ^[4] The classical quantity theory of money assumed that the demand for money was static and independent of other factors such as interest rates. Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets Economists questioned the classical quantity theory of money during the Great Depression when the demand for money, and thus the velocity of money, fell sharply. ^[5]

Keynesianism

Until the 1930s, most economic analysis did not separate out individual behavior from aggregate behavior. The 1930s were described as an abrupt shift to more radical and conservative lifestyles as countries were struggling to find a solution to the Great Depression. With the Great Depression of the 1930s and the development of the concept of national income and product statistics, the field of macroeconomics began to expand. Before that time, comprehensive national accounts, as we know them today, did not exist. The ideas of the British economist John Maynard Keynes, who worked on explaining the Great Depression, were particularly influential. John Maynard Keynes 1st Baron Keynes CB (ˈkeɪnz "cains" (5 June 1883 &ndash 21 April 1946 was a British Economist whose ideas

After Keynes

One of the challenges of economics has been a struggle to reconcile macroeconomic and microeconomic models. Microeconomics is a branch of Economics that studies how individuals households and firms and some states make decisions to allocate limited resources typically in markets Starting in the 1950s, macroeconomists developed micro-based models of macroeconomic behavior, such as the consumption function. In Economics, the consumption function is a single mathematical function used to express consumer spending Dutch economist Jan Tinbergen developed the first national macroeconomic model, which he first built for the Netherlands and later applied to the United States and the United Kingdom after World War II. The Netherlands ( Dutch:, ˈnedərlɑnt is the European part of the Kingdom of the Netherlands, which consists of the Netherlands the Netherlands An economist is an expert in the Social science of Economics. Jan Tinbergen ( The Hague, April 12, 1903 June 9, 1994 The Hague) Dutch Economist, was awarded A model in Macroeconomics is a logical mathematical and/or computational framework designed to describe the operation of a national or regional economy and especially the The United States of America —commonly referred to as the The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located World War II, or the Second World War, (often abbreviated WWII) was a global military conflict which involved a majority of the world's nations, including The first global macroeconomic model, Wharton Econometric Forecasting Associates LINK project, was initiated by Lawrence Klein and was mentioned in his citation for the Nobel Memorial Prize in Economics in 1980. Wharton Economic Forecasting Associates (WEFA was a world-leading Economics forecasting and consulting organisation founded by Nobel Prize winner Lawrence Klein Lawrence Robert Klein (born September 14, 1920) is an American economist. The Nobel Memorial Prize in Economic Sciences, officially named The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (Sveriges riksbanks pris i ekonomisk Year 1980 ( MCMLXXX) was a Leap year starting on Tuesday (link displays the 1980 Gregorian calendar)

Theorists such as Robert Lucas Jr suggested (in the 1970s) that at least some traditional Keynesian (after John Maynard Keynes) macroeconomic models were questionable as they were not derived from assumptions about individual behavior, but instead based on observed past correlations between macroeconomic variables. Robert Emerson Lucas Jr (born September 15, 1937, Yakima Washington) is an American Economist at the University of Chicago In Economics Keynesian economics (ˈkeɪnziən also Keynesianism and Keynesian Theory) is based on the ideas of twentieth-century British economist The Lucas Critique, named for Robert Lucas 's work on macroeconomic policymaking says that it is naive to try to predict the effects of a change in economic policy entirely on However, New Keynesian macroeconomics has generally presented microeconomic models to shore up their macroeconomic theorizing, and some Keynesians have contested the idea that microeconomic foundations are essential, if the model is analytically useful. New Keynesian economics is a school of contemporary Macroeconomics that strives to provide microeconomic foundations for Keynesian economics. An analogy might be, that the fact that quantum physics is not fully consistent with relativity theory does not mean that relativity is false.

The various schools of thought are not always in direct competition with one another, even though they sometimes reach differing conclusions. Macroeconomics is an ever evolving area of research. The goal of economic research is not to be "right," but rather to be useful (Friedman, M. 1953). An economic model, according to Friedman, should accurately reproduce observations beyond the data used to calibrate or fit the model.

Analytical approaches

The traditional distinction is between two different approaches to economics: Keynesian economics, focusing on demand; and supply-side economics, focusing on supply. Neither view is typically endorsed to the complete exclusion of the other, but most schools do tend clearly to emphasize one or the other as a theoretical foundation.

• Keynesian economics The first stage of macroeconomics was a period of academic theory heavily influenced by the economist Keynes. In Economics Keynesian economics (ˈkeɪnziən also Keynesianism and Keynesian Theory) is based on the ideas of twentieth-century British economist It therefore has his name. This period focused on aggregate demand to explain levels of unemployment and the business cycle. That is, business cycle fluctuations should be reduced through fiscal policy (the government spends more or less depending on the situation) and monetary policy. Fiscal policy, taking the scope of Budgetary policy, refers to government policy that attempts to influence the direction of the economy through changes in government taxes Monetary policy is the process by which the Government, Central bank, or monetary authority of a country controls (i the Supply of Money, Early Keynesian macroeconomics was "activist," calling for regular use of policy to stabilize the capitalist economy, while some Keynesians called for the use of incomes policies. Incomes policies in Economics are Wage and Price controls, most commonly instituted as a response to Inflation.

• Neoclassical economics For decades there existed a split between the Keynesians and classical economists, the former studying macroeconomics and the latter studying microeconomics. Neoclassical economics is a term variously used for approaches to Economics focusing on the determination of prices outputs and income distributions in markets This schism has been resolved since the late 80s, however, and macroeconomics has evolved well into its second phase. The models Keynes used are now considered to be outdated, and new models have been designed that have greater logical consistency and are more closely related to microeconomics. The models used in macroeconomics today, however, have been built upon Keynesian models and are therefore similar. The main difference in this second stage of macroeconomics is an increased focus on monetary policy, such as interest rates and money supply. Macroeconomic theory today has harmonized the study of aggregate demand and supply with the study of money.

Schools

• Monetarism, led by Milton Friedman, holds that inflation is always and everywhere a monetary phenomenon. Monetarism is a school of economic thought concerning the determination of national income and monetary Economics. Milton Friedman (July 31 1912 November 16 2006 was an American Nobel Laureate Economist and Public intellectual. In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time It rejects fiscal policy because it leads to "crowding out" of the private sector. Fiscal policy, taking the scope of Budgetary policy, refers to government policy that attempts to influence the direction of the economy through changes in government taxes In economics crowding out theoretically occurs when the Government expands its borrowing to finance increased expenditure or cuts taxes (i Further, it does not wish to combat inflation or deflation by means of active demand management as in Keynesian economics, but by means of monetary policy rules, such as keeping the rate of growth of the money supply constant over time. Monetary policy is the process by which the Government, Central bank, or monetary authority of a country controls (i the Supply of Money,
• New classical economics. New classical macroeconomics emerged as a school in Macroeconomics during the 1970s The original theoretical impetus was the charge that Keynesian economics lacks microeconomic foundations -- i. e. its assertions are not founded in basic economic theory. This school emerged during the 1970s. This school asserts that it does not make sense to claim that the economy at any time might be "out-of-equilibrium". Fluctuations in aggregate variables follow from the individuals in the society continuously re-optimizing as new information on the state of the world is revealed. A neo classical economist would define macroeconomics as dynamic stochastic general equilibrium theory, which means that choices are made optimally considering time, uncertainty and all markets clearing. Dynamic stochastic general equilibrium modeling (abbreviated DSGE or sometimes DGE) is a branch of applied General equilibrium theory that is increasingly
• New Keynesian economics, which developed partly in response to new classical economics, strives to provide microeconomic foundations to Keynesian economics by showing how imperfect markets can justify demand management. New Keynesian economics is a school of contemporary Macroeconomics that strives to provide microeconomic foundations for Keynesian economics.
• Post-Keynesian economics represents a dissent from mainstream Keynesian economics, emphasizing the role of uncertainty, liquidity preference and the historical process in macroeconomics. Post Keynesian economics is a school of thought with its origins in The General Theory of John Maynard Keynes, although its subsequent development was influenced Uncertainty is a term used in subtly different ways in a number of fields including Philosophy, Statistics, Economics, Finance, Insurance Finance Theory John Maynard Keynes developed the Liquidity Preference of Interest in the General Theory of Employment Interest and Money.

Macroeconomic Policies

In order to try to avoid major economic shocks, such as The Great Depression, governments make adjustments through policy changes which they hope will succeed in stabilizing the economy. Governments believe that the success of these adjustments is necessary to maintain stability and continue growth. This economic management is achieved through two types of strategies.

• Fiscal Policy
• Monetary Policy

Notes

References

• Blanchard, Olivier (2000), Macroeconomics, Prentice Hall, ISBN 013013306X . Prentice Hall is a leading educational publisher It is an Imprint of Pearson Education Inc
• Friedman, Milton (1953), Essays in Positive Economics, London: University of Chicago Press, ISBN 0-226-26403-3 . Milton Friedman (July 31 1912 November 16 2006 was an American Nobel Laureate Economist and Public intellectual. London ( ˈlʌndən is the capital and largest urban area in the United Kingdom. The University of Chicago Press is the largest University press in the United States
• Heijdra, B. J. (2002), Foundations of Modern Macroeconomics, Oxford University Press, ISBN 0-19-877617-9 .
• Mishkin, Frederic S. (2004), The Economics of Money, Banking, and Financial Markets, Boston: Addison-Wesley, p. Addison-Wesley is a Book publishing imprint of Pearson PLC, best known for computer books 517 
• Snowdon, Brian (2005), Modern Macroeconomics: Its Origins, Development And Current State, Edward Elgar Publishing, ISBN 1-84376-394-X .

See also

• Microeconomics
• Monetary policy
• Keynesian economics
• Economic development
• Fiscal Policy
• Dynamic stochastic general equilibrium
• Model (macroeconomics)
• AP Macroeconomics

Microeconomics is a branch of Economics that studies how individuals households and firms and some states make decisions to allocate limited resources typically in markets Monetary policy is the process by which the Government, Central bank, or monetary authority of a country controls (i the Supply of Money, In Economics Keynesian economics (ˈkeɪnziən also Keynesianism and Keynesian Theory) is based on the ideas of twentieth-century British economist Economic development is the development of economic wealth of countries or regions for the well-being of their inhabitants Fiscal policy, taking the scope of Budgetary policy, refers to government policy that attempts to influence the direction of the economy through changes in government taxes Dynamic stochastic general equilibrium modeling (abbreviated DSGE or sometimes DGE) is a branch of applied General equilibrium theory that is increasingly A model in Macroeconomics is a logical mathematical and/or computational framework designed to describe the operation of a national or regional economy and especially the

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