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What Is the Importance of Macroeconomics?

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  • Originally Written By: Esther Ejim
  • Revised By: C. Mitchell
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 26 November 2016
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Macroeconomics is a field that has significant importance to almost any entity that is involved in both commerce and trade, and its principles allow researchers and other experts to predict a number of things related to economic markets and monetary policies. Macroeconomics involves studying the monetary health of a region or business sector as a whole, concentrating on factors that indicate both positive and negative changes overall. The theories and principles of this discipline are commonly used to evaluate and predict employment rates, for instance, and can also be used to shed light on national business cycles and their impact on a given country’s gross domestic product (GDP). They can help economists formulate effective monetary policies for both big corporations and national governments, and are frequently used to predict economic growth and anticipate periods of decline or recession. All of this knowledge is important in its own right, but is also critical for policymakers and business leaders; knowing what to expect or anticipate usually leads to stronger and more effective long-term planning.

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Evaluating Employment Rates

The importance of macroeconomics is particularly relevant when it comes to getting a grip on a region’s true rates of unemployment. The true percentage of unemployed workers is derived by calculating the number of those actively seeking employment in the labor force. This number does not include those who may be taking some time off from the labor market for personal pursuits like further education or training, or to stay home and care for aging parents or young children.

Almost all economists have some interest in employment statistics, since these are some of the best indicators of how a given region is doing on an economic level — when most people are working, the economy is generally strong, but when skilled laborers can’t find or keep jobs, things are often much more unstable. This facet of macroeconomics is useful for gauging the expected level in unemployment claims in countries that have welfare packages, and can help leaders in both government and industry anticipate changes and demographic shifts. Economists can use this information to do anything from creating new market sectors and advising businesses to lobbying lawmakers for improved social benefits.

Understanding National Business Cycles

Another way to see the importance of macroeconomics is to look at its use in collecting statistics regarding the business cycle of a given country. This involves a periodic review of the rate of demand for finished goods and services. Such a review normally occurs on a quarterly basis and is an important component of the GDP. This part of macroeconomics is really crucial because when the demand for goods and services increases within a business cycle, it is also reflected in the GDP level — which also usually increases as a result.

Formulating Monetary Policies

Economists and governments frequently use macroeconomic principles to study the growth of the GDP when they are formulating monetary policies. These sorts of policies are often sort of like budgets for governments and government divisions; they set out rules about how money should be spent, and usually also include accountability measures to be sure that money coming in and going out is being both recorded and transparently disclosed. The monetary policy may serve as a means for reducing the GDP level or as a means for encouraging consumer behavior that will lead to a decrease in the GDP level. This is particularly necessary since GDP that is too low or too high could have a negative effect on the economy. In particular, a GDP that is substantially higher than normal could be a precursor to a depression in the economy of a nation.

Predicting Economic Growth and Stagnation

Government leaders often use macroeconomics as a way to guide fiscal policies as a way to prevent calamities and spur growth in the free market. A government might choose to increase interest rates as a means of forcing consumers to scale back on the rate of spending, for instance. When the consumers save more and spend less, this will be reflected in a lower GDP, which in many cases will help stabilize the economy.

Businesses and various organizations also study macroeconomic trends with the aim of using the results as a guide toward formulating independent business policies. For instance, an increase in the consumption of goods could be an indication of increased consumer confidence, which could influence the decision of a company to either increase or reduce production until the consumption rates increase.

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