An Introduction to the Principles of Macroeconomics
Macroeconomics is the study of large scale economic issues such as those which affect the entire economy. This is in contrast to Microeconomics which looks at smaller scale economic principles. Macroeconomics is a highly practical discipline as it deals with principles that directly impact every part of life. The economy has a knock on effect on almost every part of people’s lives as a nation’s economic well-being affects its employment, healthcare, consumer confidence and so forth.
Macroeconomics is a broad discipline which encompasses many separate areas of study. The Principles of Macroeconomics can broadly be grouped into two areas of concern – firstly, the effects of the business cycle on the wider economy and secondly, what causes an economy to grow over a long period of time.
The Principles of Macroeconomics aim to analyze the many different factors that relate to the performance and structure of large, macro economies, such as the economy of a nation or the economy of the entire world.
Principles of Macroeconomics – A Basic Explanation of Key Principles
- National Income – The area of macroeconomics analyses the wealth a nation generates. There are different measures for this such as Gross National Product, Gross Domestic Product, and Net National Income. The underlying purpose of all of these is to paint a picture of the financial health of a nation. The basic approach to this undertaking is looking at the value of goods and services produced by a nation over the course of a year.
- Inflation – Inflation is the study of how the cost of goods and services rises as time goes on. For example, if a car cost $1000 more in a given year than it did ten years previously, that would be a case of inflation. Inflation is a complex area of economics but the consensus among leading modern economists is that it’s desirable for inflation to be kept at a low or steady rate as near to zero as possible. This helps negate the negative consequences of economic recession.
- Economic Output – This is the study of the goods and services which a national economy produces. A high output is desirable as the more money that is spent on a nation’s goods and services, the more benefit this holds for a country due to the fact that more people will be in employment and greater tax revenue will be raised.
- International Trade – This area of macroeconomics looks at the trade that occurs between nations in terms of goods, services, and raw materials. International trade often forms a large part of a nation’s income as the world is obviously a far larger market place than a single nation. International trade is vital to the world economy as often certain raw materials or goods are only or best produced in a certain country or region. For example, colder nations do not have the climate needed to produce bananas, so for that country to have banana availability, international trade is required.
Principles of Macroeconomics – The impact and Importance of Macroeconomic Principles
When initially mentioned, the principles of macroeconomics may sound uninteresting and abstract. Often people believe that economics is a dry subject which isn’t relevant to everyday life. This is far from the truth. The principles of macroeconomics directly impact almost every area of life. They affect employment, government welfare, the availability of goods and services, the way nations interact with one another, the price of food in the shops – almost everything. We live in a capitalist world so understanding the principles of macroeconomics is an essential part of understanding the world at large.