Macroeconomics (from Greek prefix "makros-" meaning "large" + "economics") is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes national, regional, and global economies. With microeconomics, macroeconomics is one of the two most general fields in economics.
Macro-economics is the branch of economics that studies 'aggregates'. Aggregates are economic indicators that apply to large groups, for instance to all construction companies or all households or to the Netherlands as a whole.
Traditionally, in the United States the study of macroeconomics has had two main schools. Put simply, the Keynesian school of macroeconomics focuses on total demand and looks to both fiscal policy (government spending levels) and monetary policy (money supply growth) for solutions. The Monetarism school of macroeconomics rejects fiscal policy as a means of managing the economy and looks to monetary policy exclusively for answers.
There are two potential problems with macro equilibrium: Undesirability - the price-output relationship at equilibrium may not satisfy our macroeconomic goals. Instability - even if the designated macro equilibrium is optimal, it may be displaced by macro disturbances.
Keynesian economics asserts that changes in aggregate demand can create gaps between the actual and potential levels of output, and that such gaps can be prolonged. Keynesian economists stress the use of fiscal and of monetary policy to close such gaps.
Macro-economics is traditionally broken down into macro-economic theory and macro-economic policy. Macro-economic theory involves the construction and use of models of the whole, ‘macro’, economy. Economists build such models so that they can explain the structure of an economy, and the role and significance of the parts that make up this structure. Macro-economic models also help the economist understand how the separate components of the macro-economy are related.
Macro-economic policy refers to how governments and other policy makers compensate for market failures in order to improve economic performance and well-being. Improvements in performance begin with the setting of policy objectives, which include the achievement of sustainable economic growth and development, stable prices and full employment. Some of the objectives set are potentially in conflict with each other, which means that, in attempting to achieve one objective, another one is ‘sacrificed’.
The growth in the number of camps in modern macroeconomics from the principle two until the late 1970's, namely, Keynesians and Monetarists, to the current five, including the Keynesians, the Post-Keynesians, the New Keynesians, the Monetarists, and the New Classicals, pretty much results from the failure of texts in the history of economic thought to identify the conceptual confusions introduced by Keynes's work.
In modern macroeconomics the economy is portrayed as a dynamic stochastic general equilibrium (DSGE) system that reflects the collective decisions of rational individuals over a range of variables that relate to both the present and the future. These individual decisions are then coordinate through markets to produce the macroeconomy.
The study of macroeconomics was prompted in large part by the Great Depression - the worldwide recession of the 1930's. One of Keynes's original objective in "The General Theory" (Keynes 1936) was to understand how such sustained periods of high unemployment could occur. From the beginning, therefore, interest was directed not so much to how the economic system behaved in long-run equilibrium, but to why it seemed to be misbehaving in the short run by generating periods of apparent disequilibrium - in particular, departures from full employment - and to what, if anything, could be done about this.
Macroeconomics addresses the behavior of large economic entities such as countries and continents. It analyzes unemployment, gross domestic product, etc. It is used to appraise the condition of the large-scale economy, and how it affects our country, our company, and our pocketbook.