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September 18, 2018 

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FINANCIAL MARKET: A market that trades financial assets. Financial assets are the legal claims on the real assets in our economy and include such notable items as corporate stocks and bonds, government securities, and money. Without financial markets our economy would find it almost impossible to accumulate the funds needed for investment in big, expensive capital projects.

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MACROECONOMICS:

The branch of economics that studies the entire economy, especially such topics as aggregate production, unemployment, inflation, and business cycles. It can be thought of as the study of the economic forest, as compared to microeconomics, which is study of the economic trees.
The overall study of economics is divided into two related, but relatively separate branches--macroeconomics and microeconomics. Macroeconomics is the study of the aggregate economy, or the macroeconomy. Microeconomics is the study of smaller parts of the economy, or the microeconomy.

A Little History

The modern study of macroeconomics can trace its origins to John Maynard Keynes and his book, The General Theory, which was published in 1936 during the Great Depression. In contrast to the microeconomic theories that pervaded economic thought at the time, Keynes demonstrated that the macroeconomy operated according to a set of principles that are not particularly relevant for microeconomic analysis.

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

Macroeconomics, as the study of the aggregate economy, is concerned with aggregate types of problems and issues. The most important problems--unemployment, inflation, and stagnant production--relate to the three macroeconomic goals of full employment, stability, and economic growth.

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

The study of macroeconomics is filled with several competing theories. The dominant theory used in modern macroeconomic analysis is the aggregate market, or AS-AD model. It combines features of Keynesian economics, developed by John Maynard Keynes during the Great Depression, and classical economics, the forerunner of Keynesian economics.

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

The modern study of macroeconomics, developed as an explanation of, and remedy for, the problems of the Great Depression, has always been intertwined with economic policies. The two most noted macroeconomic policies are fiscal policy and monetary policy. Fiscal policy seeks to stabilize the business cycle using government expenditures and taxes. Monetary policy seeks to stabilize the business cycle using the money supply and interest rates.

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.

Like most aspects of government, macroeconomic policies are intertwined with politics and political views. Political liberals generally favor an active role for government and tend to opt for fiscal policy over alternatives. Political conservatives generally favor little or no government intervention and tend to opt for the least intrusive actions, beginning with a "do nothing" approach.

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MACROECONOMICS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: September 18, 2018].


Check Out These Related Terms...

     | macroeconomic goals | full employment | microeconomics | stability | economic growth | macroeconomic problems | macroeconomic sectors | macroeconomic theories | macroeconomic sectors |


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     | economics | mixed economy | economy | economic system | liberal | conservative | political views | government functions | public sector | private sector |


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