MACROECONOMICS: A BRIEF HISTORY
Macroeconomics is a branch of study under Economics that deals with the economy’s growth and the way it behaves. It examines nationwide phenomenon with aggregated indicators that affect the whole economy such as unemployment rates, gross domestic product, price indexes, national income, inflation, and rate of growth among others. Macroeconomics’ primary aim is to understand how the whole economy functions. It gets its name from the study of economics in the whole sense hence the ‘macro.’
Whereas microeconomics deals with a more specific subject: the individual, a firm, or any particular entity and the choices made by these entities and why they made it that affect their selves and the economy as a whole. It basically studies the similar things as macroeconomics: behavior, factors, prices, etc. but on the individual level.
Macroeconomics is a vast area of study but it mostly focuses on two key points in the economy. First, it examines the causes and effects in the national income of brief fluctuations. Second, it tries to comprehend the factors involved in the economic growth as a whole.
The term "macroeconomics" is a term that just recently emerged and coined by Ragnar Frisch in 1933. However, despite the term only being verbalized then, the concepts within it, prices, trade, unemployment, national income, etc. has been long since studied.
The topics has just been narrowed and specialized during the 1990s and the 2000s. Hence, it is difficult to concretely trace where macroeconomics began. Despite this, many theorists name John Maynard Keynes as one of the forefathers of economics. His study is referred to as the Keynesian Revolution where the business cycle literature versus the growth literature was established along with the counters for classical economics and the stable relationships, the consumption function of total income and the Philips curve, and the unstable money demand and the liquidity trap. Keynes work derived concepts from Adam Smith and John Stuart Mill’s studies.
After the Keynesian Revolution came the Monetarism, Neo-Keynesianism, and Post-Keynesianism which all established further studies about the different aspects of the economy: the quantity theory of money, consumption as a function of permanent income, economic instability due to inept monetary policies, Hick’s IS/LM model, price and wage rigidities, and disequilibrium analysis just to name some.
Following the end of world wars, there arose new concepts in the 1970s. Stagflation which gave birth to rational expectations, real business cycles, and a new Keynesian Theory. These concepts will then give way to new economic perspectives and the present day study of Macroeconomics and finance.
In the next article, we will be discussing the basic concepts of Macroeconomics. Here we will be able to grasp more of the fields macroeconomics is most concerned about: output and income, unemployment, and inflation and deflation.
Macroeconomics: Basic Concepts
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