What are the basic concepts of macroeconomy


This article addresses the question: - What is Macroeconomics? - and borders this part of the Economics of the Microeconomics from. After a definition of macroeconomics will be the differences of Micro and macro economics worked out. This is followed by a Macroeconomics summary, which gives you an overview of all sub-areas.

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Macroeconomics definition

The Macroeconomics, also Macroeconomics called is one economic theory, which deals with the macroeconomic behavior different Economic sectors and Markets and their interrelationships. The term macroeconomics comes from the Greek and means something like "big house".

Micro and macro economics

In order to be able to delimit the macroeconomics, it should be clarified briefly what the microeconomics is concerned with.

The Microeconomics does not deal with macroeconomic aspects, but takes a closer look at individual sub-areas. Specific objects of investigation are, for example, individual households, companies and the effects of different market forms on welfare with a focus on individual maximization of benefits.

The Household theory deals with decision-making problems in the goods and services market. Within the Production theory on the other hand, problems of coordination of production factors are dealt with at company level. The Price theory examines the different market forms and the resulting competitive situations. In addition, within microeconomics, too advanced concepts considered, which influence the welfare in an economy and in the worst case lead to market failure.

Economics Macroeconomics

In general, the micro and deal Macroeconomics as part of the Economics with the distribution of production factors and economic relationships. In comparison to Business administration, which is considered a sister discipline of economics, economics theory looks at these issues from a more abstract and distant point of view.

Microeconomics Macroeconomics

In contrast to microeconomics, macroeconomics looks at the interrelationships between sectors and markets in an economy as a whole from a bird's eye view. The role of the state or the importance of foreign countries are also included in the analysis. The Macroeconomics thus deals with macroeconomic theories, whereas the Microeconomics the behavior of individuals Economic entities considered. Strictly speaking, these two sub-areas of economics cannot be completely separated from one another, but complement each other.

Macroeconomics simply explained

Macroeconomics makes use of simplifying models and aggregated quantities to examine the macroeconomic and very complex relationships. Such key figures are, for example Real and nominal GDP or that Gross national income. Another object of consideration in macroeconomic analyzes can also be various price indices, such as the Laspeyres or the Paasche Indexbe. But what is macroeconomics now specifically and what do they have Tasks and goals of economic policy, such as that external balance within the magical square to do with?

First and foremost, macroeconomic theories try to illustrate the fundamental determinants, the international differences and the development over time of an economy in order to make recommendations for action Economic policy to be able to derive. Thus, among other things, macroeconomics analyzes the influence of the state, i.e. one expansionary or restrictive fiscal policy on the overall economic equilibrium and is at the same time the empirical basis for economic policy decisions.

Macroeconomics Abbreviations

The terms Macroeconomics and Macroeconomics are largely treated as synonyms in practice. The abbreviation macro is also very common in everyday language. Different terms can also be found within the models and macroeconomic formulas with regard to specific macroeconomic theories. So may be in the course Macroeconomics TU Darmstadt different names are used for the same variables than in the course Macroeconomics TU Dortmund, depending on which textbook is being used.

Macroeconomic Development

These different terms and designations go back to the far-reaching development of macroeconomics. The first fundamental questions about economic interrelationships arose in the Antiquity. Nice Plato and Aristotle sat down in their important works with issues such as Monetary policy and interest apart. At that time, however, the focus of her work was not yet on the economy as such, but on the potential for conflict with other sciences such as ethics or law. Over the centuries more and more concrete statements, theories and models on macroeconomic issues have been developed. However, the founder of today's macroeconomics is considered to be John Maynard Keynes with his Keynesian theory.

Macroeconomic Theories

Within the various macroeconomic theories, simplifying assumptions are often made, which obviously contradict reality, but which make economic analysis possible in the first place. So when looking at the Goods market, of Money marketand des Labor market for example the assumption of a closed economy. This means that these models neither consider the influence of exports nor imports in the analysis. Sometimes some assumptions are made in more complex models like the AS AD model repealed, which makes total analytical statements possible.

Goods market

All goods and services of an economy are traded on the goods market. The equilibrium results from the consumption of individuals and the production of companies. The consumption function in the goods market model depicts demand.

This simple model forms the basis for deriving the IS curvewhich in turn goes into the AS AD model.

Money market

Like analyzing the goods market, the money market is fundamental to more complex macroeconomic models like that IS LM model.

From the money market equilibrium, which arises due to the intersection of the demand for money with the supply of money, in a next step the LM curve derive.

labour market

They meet on the job market Wage setting and the Pricing each other and thus determine the natural unemployment rate. The relationship between inflation and the unemployment rate can be made using the so-called Phillips curve analyzed and interpreted.

IS LM model

Based on the findings from the goods and money market model, the IS LM model enables the analysis of the influence of Monetary policy and Fiscal policy on the demand side of an economy. The LM curve depicts the entire equilibrium of the money market and the IS curve depicts the goods market equilibrium, taking into account the Interest rate and the production. In a further step, this model can be used for AD curve be summarized.

AS AD model

The AS AD model enables a comprehensive analysis of the demand and supply side of an economy. The demand side is supported by the AD curve pictured. AD stands for aggregate demand and combines the two equilibria of the goods and the money market, i.e. the equilibrium of the IS LM model, in a curve. AS stands for aggregate supply and forms through the AS curvethe equilibrium in the labor market, which comes about due to the equilibrium between the wage setting equation and the price setting equation. With the help of this model, the short, medium and long-term effects of Monetary and Fiscal Policy and also the consequences of so-called Supply shocks map and understand.

Macroeconomics summary

  • Looking at macroeconomics macroeconomic relationships from a bird's eye view
  • Macroeconomic theories form the empirical basis for economic policy decisions
  • The goods market forms the basis for the IS curve and the money market is fundamental for the derivation of the LM curve
  • With the IS LM model, taking into account the Interest rate and the production the effects of money and fiscal policy are considered
  • By combining the IS LM model into the AD curve and deriving the AS curve to take into account the supply side, a comprehensive economic analysis possible