Introduction to Macroeconomics | BBS 2nd Year

Economics:

 Economics is about the study of scarcity and choice. It is the study of how people, businesses, governments, and societies make choices about how to use limited resources to satisfy unlimited wants and needs. There are two main branches:

• Microeconomics – zooms in on individuals and businesses.
• Macroeconomics – looks at the big picture like inflation, unemployment, and national income.

Meaning of Macroeconomics

Macroeconomics is the branch of economics that deals with the study of the entire economy as a whole. Instead of focusing on individuals or small businesses, macroeconomics looks at the big picture — such as the total level of output (GDP), national income, overall price levels, inflation, unemployment, interest rates, and government policies. It helps us understand how an economy functions at the national and international levels, and how different sectors of the economy interact with one another. For example, it explores how rising prices affect the overall purchasing power of citizens, or how a government can reduce unemployment using fiscal or monetary policies.

Macroeconomics = Economics at the national or global level.

Features of Macroeconomics

·         Aggregate Focus: Studies entire economy instead of individuals.

·         Broad Variables: Deals with GDP, inflation, unemployment, etc.

·         General Equilibrium: Looks at how various parts of the economy are connected.

·         Policy-Oriented: Helps frame government economic policies.

·         Dynamic Nature: Considers changes over time like economic growth or recession.

Scope of Macroeconomics

Macroeconomics covers a wide area, including:

·         National Income Accounting – Measuring GDP, GNP, NNP.

·         Employment and Unemployment – Labor force analysis.

·         Money and Banking – Role of central banks, money supply.

·         Inflation and Deflation – Price stability and its control.

·         Economic Growth and Development – Long-term progress.

·         Public Finance – Government spending, taxation, fiscal policy.

·         International Trade – Balance of payments, exchange rates.

Importance / Use of Macroeconomics

·         Economic Planning: Helps governments design policies for growth.

·         Stabilization: Controls inflation and unemployment.

·         Monetary & Fiscal Policy: Guides interest rates, taxes, and government spending.

·         Global Perspective: Understands international trade and finance.

·         Theoretical Understanding: Builds models to predict future trends.

Limitations of Macroeconomics

·         Over-generalization: Ignores individual differences.

·         Data Problems: Uses estimates; not always accurate.

·         Time Lag: Policies take time to show results.

·         Failure in Crisis Prediction: Sometimes can’t prevent sudden shocks (like COVID-19).

·         Dependency on Assumptions: Relies on ideal economic behavior.

Difference Between Microeconomics and Macroeconomics

Basis of Difference	Microeconomics	Macroeconomics
Meaning	Studies individual economic units like consumers, firms, and industries.	Studies the economy as a whole, including national income, inflation, etc.
Scale of Study	Small scale (individual level).	Large scale (national or global level).
Focus Area	Decision-making by individuals and firms.	Aggregate economic variables and overall performance of the economy.
Main Variables	Demand, supply, price, production, cost, revenue, consumer behavior.	GDP, national income, inflation, unemployment, fiscal and monetary policy.
Objective	Determines price and output for individual goods and services.	Ensures overall economic stability and growth.
Nature	Static and partial equilibrium in nature.	Dynamic and general equilibrium in nature.
Level of Aggregation	Studies individual markets in isolation.	Studies aggregate markets and their interdependence.
Approach	Bottom-up approach (starts from individuals to general).	Top-down approach (starts from total and goes to components).
Application	Helps in business decision-making and resource allocation.	Helps in government policy formulation and economic planning.
Examples	Price of rice in local market, wage of a laborer, supply of smartphones.	National unemployment rate, inflation trend in Nepal, GDP growth rate.