A Little History

A major aspect of macroeconomics is the study of business-cycle fluctuations, which was the predominant economic phenomenon during the Great Depression and which is what prompted Keynes to write The General Theory. While economists before Keynes, including Thomas Malthus and Karl Marx, had studied macroeconomic phenomena, most worked largely within the framework of existing microeconomic notions of supply, demand, and markets. In contrast, Keynes developed principles that applied specifically to the aggregate, macroeconomy, especially the consumption function, the marginal propensity to consume, and the expenditure multiplier.

Problems and Issues

Unemployment, commonly measured by the average unemployment rate, indicates what portion of the economy's total resources are not being used for production. Inflation, measured by the inflation rate, indicates whether the average level of prices are rising, falling, or remaining stable. Problems related to aggregate production are measured by gross domestic product, especially relative to potential gross domestic product.

Most macroeconomic problems and issues relate to business-cycle instability. Business cycles are irregular fluctuations of overall economic activity, marked by alternating periods of expansion, with increasing production, low unemployment, and rising inflation, followed by contraction, with declining production, high unemployment, and less inflation.

Alternative Theories

Other macroeconomic theories include monetarism, rational expectations, neo-Keynesian economics, supply-side economics, and new classical economics--to name a few. These theories often differ based on the macroeconomic phenomena scrutinized and underlying political orientation.

Policies and Politics

Other macroeconomic policies include supply-side policies, aimed at improving the productivity and efficiency of production, and "do nothing" policies, in which government explicitly refrains from taking action so that the macroeconomy has the time to heal itself.