Question 1
What is meant by macroeconomic theory?
Solution
Macroeconomics is that branch of economic theory which studies economy in its totality or as a whole. Expressed alternatively, macroeconomics is the study of broad economy-wide aggregates. Aggregate demand, aggregate supply, level of employment, price level, rate of inflation etc. are some of the important macro aggregates. It analyses what determines the real GDP and what causes unemployment and rise in general price level. It examines inter-relationship among various economic variables. Thus it studies not one economic unit like household, a firm, an industry but the whole economic system. It is like analysing the economic 'forest' as distinguished from the 'trees' that comprise the forest. Examples of macroeconomics are : national income, national savings, aggregate supply, level of employment, price level, rate of inflation, balance of trade etc. Since subject matter of macroeconomics revolves around determination of level of income and employment, therefore, it is also known as 'Theory of Income and Employment'.
