MACRO ECONOMICS - BMT6111

DIGITAL ASSIGNMENT 1

NAVEEN CHANDER B P
19MBA0038
1) Explain in what way the study of Macroeconomics is important to understand the
working of an economy.

Macroeconomics is a part of economics that studies how an overall economy that is the market systems
that operate on a large scale behaves. Macroeconomics studies economy-wide phenomena such as inflation,
price levels, rate of economic growth, national income, gross domestic product (GDP), and changes
in unemployment.

Macroeconomics deals with the performance, structure, and behavior of the entire economy, in contrast
to microeconomics, which is more focused on the choices made by individual actors in the economy (like
people, households, industries, etc.).

Macroeconomics analyzes all aggregate indicators and the microeconomic factors that influence the
economy. Government and corporations use macroeconomic models to help in formulating of economic
policies and strategies.

Macroeconomics is also known as the theory of income and employment, since the subject matter of
macroeconomics revolves around determination of the level of employment and income.

The main functions of macroeconomics are the collection, organizing, and analysis of data; determining
national income; and formulating appropriate economic policies to maintain economic growth and full
employment in a developing country.

The scope of macro-economics include the following theories:

 National income
 Money
 Economic growth
 Employment
 Price levels

The studies of problem of balance of payment, unemployment, general price level are the parts of
macroeconomics, as these relate to the economy as a whole.

2
IMPORTANCE OF MACRO ECONOMICS:

 It helps us understand the functioning of a complicated modern economic system. It describes how the
economy as a whole functions and how the level of national income and employment is determined on
the basis of aggregate demand and aggregate supply.
 It helps to achieve the goal of economic growth, a higher GDP level, and higher level of employment.
 It analyses the forces which determine economic growth of a country and explains how to reach the
highest state of economic growth and sustain it.
 It helps to bring stability in price level and analyses fluctuations in business activities.
 It suggests policy measures to control inflation and deflation.
 It explains factors which determine balance of payments. At the same time, it identifies causes of deficit
in balance of payments and suggests remedial measures.
 It helps to solve economic problems like poverty, unemployment, inflation, deflation etc., whose
solution is possible at macro level only (in other words, at the level of the whole economy).
 With a detailed knowledge of the functioning of an economy at macro level, it has been possible to
formulate correct economic policies and also coordinate international economic policies.
 Macroeconomic theory has saved us from the dangers of application of microeconomic theory to the
problems that require us to look at the economy as a whole.
 Macroeconomics enables us to study the nature and size of the material welfare of the nations. The
problem of measuring social welfare is not easy; even welfare economics does not help us. Those who
are interested in the material and social welfare of all must study problems in their macroeconomic
setting. This adds to the importance of macroeconomics because when the chief objective of the studies
of economics is the welfare of entire society, economics becomes the study of macroeconomics.
 Macroeconomics studies the behavior of individual units. For instance, the reasons for increase in the
cost of a firm or industry cannot be examined without evaluating or understanding the average cost
conditions of the whole economy.
 Macroeconomics enables studying the causes, effects and solutions of general redundancy.