Macroeconomics

Macroeconomics is a part of economic analysis that focuses on the understanding of economic issues at the aggregated level. It is related to microeconomic analysis, which pursues the study of the individual economic behavior of economic agents such as households, firms, and governments and deals with the issue of the functioning of markets with an emphasis on welfare. Macroeconomics in contrast aims at the understanding of the economy as a whole. The study is concerned with the economic aggregates such as total demand for goods and services by households and firms, the total investment in the economy, the value of exports and the spending by the state sector. At the same time it endeavors to understand the relationship between national income and consumption as well as taxation, savings, and imports. The key issues of the analysis are national output and economic growth, unemployment, [Page 1041]and the development of the price level in the form of inflation.

Macroeconomic analysis can take the form of a partial analysis in which relevant aspects are identified as the object of analysis within the general economic process. This follows an isolation of particular behavioral cause-effect relationships on the basis of assumptions, which leads to a construction of models. The ceteris paribus analysis examines how a change of a variable affects another dependent variable within the model and assumes that all other variables remain unchanged. This form of partial analysis is applied in the interest rate-investment relationship, for example. Here we assume that all other variables remain constant but that a change in the money supply will have an effect on the interest rate, which in turn will change investment in the economy.

Macroeconomics can also pursue a general analysis that analyzes the interdependence of all economic variables. Here the effect of a change in demand for a particular good X will be analyzed with regard to its effect on all other goods, prices, and production factors as well as on the general goods and factor markets. In particular, does the general analysis focus on the effect of a change of the price level in the goods market on other partial markets such as the money market and the factor market, in particular the labor market. The analysis can be ex-ante or ex-post. The ex-ante analysis incorporates the plans and expectations of economic agents and aggregates (e.g., construction of an equilibrium on the basis of the consumption and investment plans on the goods markets), whereby the ex-post analysis explains economic situations that have already taken place (e.g., national income accounting, circular flow of income, gross domestic product, etc.). Macroeconomics can take a static or a dynamic form, when it is assumed that no economic agent has any need to readjust their economic plans.

The analysis, however, blurs individual results due to the aggregation; this leads to macroeconomic analysis being less definite depending on the size and heterogeneity of the selected groups of aggregates. Keeping this in mind, the value of the macroeconomic insight is necessary for the identification of economic policy options and their respective efficacy Macroeconomics plays an important role in growth theory, labor market theory, monetary theory, and international and development economics. The input-output analysis aims

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