Macro or Micro?

Macroeconomics: A Study of an Economy as a Whole

• Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole.

• Macroeconomists study topics such as GDP, unemployment, national income, price indices, output, consumption, inflation, saving, investment, energy, international trade, and international finance.

• The United Nations Sustainable Development Goal 17 has a target to enhance global macroeconomic stability through policy coordination and coherence as part of the 2030 Agenda.

• Macroeconomics descended from the once divided fields of business cycle theory and monetary theory.

• Keynes' theory is a new theory of economics that explains why markets might not clear, which evolved into a group of macroeconomic schools of thought known as Keynesian economics.

• Monetarism fell out of favor when central banks found it difficult to target money supply instead of interest rates as monetarists recommended.

• New classical macroeconomics further challenged the Keynesian school and introduced rational expectations to macroeconomics.

• New Keynesian economists responded to the new classical school by adopting rational expectations and focusing on developing micro-founded models that are immune to the Lucas critique.

• The AD-AS model has become the standard textbook model for explaining the macroeconomy.

• The IS-LM model gives the underpinnings of aggregate demand and answers the question "At any given price level, what is the quantity of goods demanded?".

• The neoclassical growth model of Robert Solow has become a common textbook model for explaining economic growth in the long-run.

• In ecological economics, macroeconomic models replace the circular flow of income diagram with a more complex flow diagram reflecting the input of solar energy, which sustains natural inputs and environmental services.Macroeconomics: A Summary

• Macroeconomics is concerned with the study of the economy as a whole, including topics such as GDP, inflation, and unemployment.

• Economic growth is driven by advances in technology, capital accumulation, and better education.

• Business cycles can cause short-term drops in output, called recessions, and economists look for macroeconomic policies to prevent them and promote long-term growth.

• Unemployment is measured by the percentage of workers without jobs in the labor force, and is broken down into several types related to different causes.

• Inflation and deflation are measured by changes in price indexes, and central bankers use monetary policy to stabilize prices and avoid negative consequences.

• Macroeconomic policy is implemented through fiscal and monetary policy, with a focus on limiting the effects of the business cycle to achieve price stability, full employment, and growth.

• Monetary policy is implemented by controlling the money supply through mechanisms such as buying or selling bonds, and can be ineffective in situations such as a liquidity trap.

• Fiscal policy is the use of government revenue and expenditure to influence the economy, and can be implemented through automatic stabilizers.

• Economists usually favor monetary over fiscal policy because it is implemented by independent central banks and suffers shorter lags.

• Macroeconomics is distinct from microeconomics, which studies the behavior of individual consumers and firms in specific markets, and is used to analyze topics such as minimum wages, taxes, and monopolies.