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Importance of Macroeconomics

Macroeconomics is a subject of the utmost importance. As already pointed our above, it uses aggregative approach in explaining the overall level of economic activity-the levels of output and employment, the level of price, and the rate of economic growth.

Understanding of Economic System

Macroeconomics is very essential for understanding the functioning of the economic system. Modern economic system is complex and complicated. It involves the study of aggregates like national income, aggregate output, national expenditure, gross saving and investment. It is only through the study of these aggregates that we can understand the working of a complex economic system.

Economic Policies

Macroeconomic analysis helps in proper formulations of economic policies. The economic policies for the removal of poverty, unemployment and stabilization must necessarily be based upon the aggregative requirements. It becomes easier for a government to regulate and control aggregate variables like general price level, output, etc, rather than to regulate and control the price and output of an individual firm or industry. Accurate and reliable statistics of the aggregative variables are the first prerequisite for the formulation of sound government policies.

National Income Concept

One of the significant concepts of macroeconomic analysis is national income. The estimates of national income can be used to measure the performance of an economy in an aggregate sense and these allow us to compare the performance with the past. National income is basically an aggregate concept. It is formed of sub-aggregates. These sub-aggregates enable us to know about the performance of different sectors of an economy.

Inflation and Deflation

Inflation can be described as a situation marked by a conterminous increase in the price level. In contrast, the phenomenon of deflation is associated with a steady and sustained fall in the price level. Both these concepts are related to the price level . The price level is influenced by the level of, and changes in, aggregate demand, output and also by other factors such as money supply, etc. Aggregative economic variable like aggregate demand, output and money supply help us in explaining this phenomenon. This phenomenon can be properly discovered only by aggregative approach and not by studying individual units. Similarly, the steps fro remedying these maladies are based on aggregative approach.

International Comparisons

Macroeconomics provides necessary information for international comparisons. For example, a comparative study of average national income, consumption and saving between different countries requires macroeconomic information.

Development of Microeconomic Theories

The study of macroeconomics is indispensable even for the purpose of building and developing microeconomics. For example, the law of diminishing marginal utility could not have been formulated without the macro-investigating. Thus, no microeconomic law can be formulated without a pre-study of the aggregates bearing on it.

Theory of Economic Growth

The most important role of macroeconomics is to be seen in the formulation of the theories of economic growth. Every economy of the world strives to achieve the highest stage of economic growth. With the help of macroeconomic analysis, one can study and analysis the process of income generation and determine the factors accelerating economic efficiency.

Aggregates Affect Individual Well-being

Movements in economic aggregates are strongly associated with the economic well-being of most individuals: the health of the sectors in which they work and the prices of goods that they purchase. These associations between the health of the macro economic and the economic fortunes of many people are the reason why macroeconomic aggregate (particularly inflation. unemployment, interest rates, and the balance of payments) are often in the news.

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