The economics which deals with aggregate economic issues is called macroeconomics. The macroeconomic theory deals with the determination of national income and employment, so it is called income theory. In classical and neoclassical periods, there were very limited studies related to macroeconomics. But after the publication of J.M. Keynes General Theory in 1936, the importance of macroeconomics has increased. The analysis of income and employment, general price level, economic growth, and income distribution are the major constituents of macroeconomic theory. The trade cycle, inflation, deflation, unemployment, and low rate of economic growth constituents macroeconomic problems. Monetary policy and fiscal policy are macroeconomic policies of the Government implemented to solve such macroeconomic problems.
Importance of Macroeconomics:
Formulation of Macroeconomic Policy:
Macroeconomics is useful to formulate aggregate price policy, aggregate tax policy, aggregate trade policy, aggregate investment policy, fiscal policy, monetary policy, etc.
Solving Various Social Problems:
Macroeconomics is also useful in studying various problems of the society such as unemployment, poverty, inequality, etc, and make necessary policies and suggestions to solve those problems.
Measurement of National Income:
Macroeconomics is also useful to calculate and measure the value of national income. It is also necessary to make an analysis on components of national income such as GDP, GNP, per capita income of a nation, etc.
Economic and Price Stability:
A nation should establish smooth economic relationships and price stability for its sustainable development. Macroeconomics helps to formulate such economic and monetary policy.
Limitations of Macroeconomics:
Considers Aggregates as Homogenous:
The individual data may not be similar in structure or composition. Thus, when such single figures are compiled to get an aggregate value, it may not seem to be that useful.
The extensive application of the macroeconomics measures seems to be irrelevant when aimed at 100% results.
The fallacy of Deductive Inferences:
Macroeconomics function on aggregate values. But, the interpretation of the individual activities may not be the same as compared to the conclusion drawn on a mass level.
Conceptual and Statistical Complexities:
When the individual data have different units, its aggregation becomes arduous and holds no significance.
Unnecessary Aggregate Variables:
When the individual elements need to be examined separated, the aggregate values cannot be used for the purpose.