Macroeconomics is a very important field of study. There are numerous scopes of macroeconomics. Government, financial organizations and researchers analyze the issues of nations and work for economic well-being. It basically includes macroeconomic theories and policies.
The theories of macroeconomics include national income, general price level, growth and development, money, international trade, and employment. There are other aspects such as unemployment in India, inflation and deflation gaps or imbalance in the balance of payment (BOP) are also parts of the macroeconomic study.
There are various concepts that are studied in the scope of macroeconomics. The term scope refers to the study of the area of macroeconomics. Let us discuss the major issues in macroeconomics to study the scope and its issues.
Contents in the Article
1. Estimation of National Income and Related Aggregates
The very most important part of macroeconomics is the calculation of national income. Other parameters such as GDP (Gross Domestic Product) and NDP (Net Domestic Product) are investigated as well. A good GDP value is the indication of an increase in the overall production or outcome of the economy.
2. Theory of Employment
In macroeconomics, the next imperative concept that needs to be studied is employment or unemployment in the economy. While studying the causes of unemployment improvement can be enhanced and government can make efforts to diminish unemployment.
3. Theory of Money Creation
The creation of money by commercial banks is the other important component of macroeconomics. The flow of the financial sector is managed under the control of RBI. Before liberalisation, it acts as a regulator. As a regulator RBI can fix interest rates.
But after liberalisation, its role is shifted to a facilitator. In the role of facilitator, the decision of fixing interest rates is done by commercial banks.
4. Theory of General Price level -Inflation and Deflation Gaps
This is another important element of macroeconomics. It shows the treading pattern of the general price level. From these patterns, we can study inflationary and deflationary gaps. The deflationary gaps occur because of a deficiency in demand. Due to a lack in demand investment is also hurt. Less investment in production will generate low output and also low income. Deflationary spiral conditions will occur in the economy. The factors which are responsible for the deficiency of demand would be government expenditure and export reduction. It would be also caused by the rise in tax rates and imports. Due to a lack of in-demand businesses get effects in a worse manner because the production items would not get sold. Also, prices of the goods decrease.
The inflationary gaps occur because of excess demand. The excess demand will increase the investment. Also, private expenditure increases. These private expenditures tend to rise because of an increase in the tendency to consume or a decrease in the tendency to save. Also the poor try to spend more to live like the rich. In an excess demand situation, the level of output doesn’t rise. As we know the resources are limited. So how can we generate more with limited resources even though we spend more? This is the reason why the level of output remains constant. Because of inflation the price of goods increases.
5. Government Role
In this, we study how the budget of the government impacts economic activities.
6. Exchange Rate and Payment Balance
The determination of the exchange rate is a prominent concept and scope of macroeconomics. Briefly, macroeconomics’s main focus is given to the issues that explain how the economy functions and how it can be managed so that maximum welfare can be generated.
Significance
1. Nature of macroeconomics
The determination of national income reveals the nature of macroeconomics. It is the best indication of how the economic activities were performed and how it was by nature. The nature here meant the desired output and development. The study of unemployment helps in determining the main factors which are responsive to unemployment. Government passes a budget that reveals how the economy will be regulated.
2. Growth and Development
Macroeconomics provides a way through which growth and development can be enhanced. Programs and roadmaps are drawn on the basis of observation of the needs of economy.
3. Stability in Economy
The overall study of macroeconomics helps in achieving stability. Stability can be achieved by a well-organized monetary policy and fiscal policy. Monetary policy is that policy that helps in maintaining the quantity of money supply. Under this policy, the control is under commercial banks. The factors which get affected by this policy are inflation, the rate of consumption, economic growth, and overall liquidity. Fiscal policy is the use of government money and the collection of taxes. The factors which get effects by this policy are aggregate demand for goods and services.
4. BoP(Balance of Payments)
This shows how the economy of the country performs as compared to the rest of the world. Similarly, the balance of trade shows the capacity of a country for export and its necessity for import.
5. Poverty and Pollution
Macroeconomics helps in identifying the problems of poverty and various causes of environmental pollution. These issues are addressed by macro-models.
6. Formation of policies
The information gathered by the variables of macroeconomics (aggregate demand and aggregate supply) helps in determining consumption and investment expenditure. This helps in the formation of policies to enhance the growth and welfare of the economy.
For instance, if saving is more, it will induce less investment. In addition, demand for products and services falls. As a result of that production, employment also decreases. Hence the economy will turn to poverty rather than prosperity.