Q1. Define macroeconomic concept and its major economic issues.

The term Macro is derived from the Greek word Macros which means Large. The term
macro was 1st used in economics by Regner Frisch, in 1933. Macro economies means of economies
large dimension. Macro economics is defined as the branch of economics which studies economic
activities, including economic issues or economic problems at the level of an economy as a whole.
In micro economics we approach economic problem from the view point of an individual
economic entity like, food industry, fruit production or cloth manufacturing. But certain issues
may be related to all the industries or all producing units, like the issue of infrastructural
facilities that includes provision of electricity, provision of credit and other banking facilities,
transport and communication. Every industry needs such facilities which are in fact the basic
requisites of production activity in general.
Following are the some major macroeconomic issue that point to the need for micro
economics as a specialised branch of study.
I. National income: It is the aggregate money value of all goods and service produced in a
country during one year. Macro economies studies that concept of national income. Its different
elements, methods of measurement and social accounting.
II. Employment: Macro economics also studies problems relating to employment and
unemployment. Economic activity considerably slowed down. There was a severe fall in demand
for good and service. Consequently there was a severe fall in business profits which led to large
scale cut in investment, implying a cut in employment. It creates unemployment situations in an
economy. In India unemployment is a major macroeconomic issue. There is a large scale rural
unemployment among the unskilled worker and high employment among the skilled works in
urban areas. So massive ad chronic is the problem of unemployment in our country.
Unemployment is not a feature of less developed countries; it is an equal important issue for
developed countries like UK or USA. In less developed countries it is chronic in nature and occurs
to lack of production capacity. In developed countries, it is cyclical in nature and occurs to lack of
demand for goods and services.
III. Theory of money: Change in demand for and supply of money have considerable
bearing on the level of employment. Macroeconomics studies functions of money and theories
relating to it.
IV. Theory of general price level: Determination of changes in general price level is the
core issue of macroeconomics problems concerning inflation and deflation are the principal issue
of macro economics.
V. Economic growth and development: Growth and development are the key
parameters of macroeconomic policies. Economic developed is a process whereby an economys
real national income increases over a long period of time. Growth is related to economically rich
and advanced countries where most of the resources are already known and developed. Growth
must be translated into development. Economics need to grow consistently over time and growth
must reflect itself in rising standard of living of the masses or the overall quality of life must
improve. Economic growth should not be achieved at the cost of environmental degradation and
excessive exploitation of natural resources such that production capacity of the future generation
is reduced. Thus there is a wakeup call for the planners and politician to design such
macroeconomic policies that ensure consistent economic growth with social justice and without
environmental degradation, and without reducing production capacity of the future generation.

VI. Business cycles: Economic activity always shows up and down, it never shows a steady
pattern of change for all time to time. This cyclical movement of the economy is known as
business cycle.
Peak
(Boom)

Economic
Activity

Prosperit
y
Recessio
n

Recovery

In the above figure illustrates the 4 phases of trade cycle. During prosperity phase economic
affairs and activities are at the optimum level and there is no wastage of resources of any kind.
When economic activity slows down, it is called a phase of RECESSION, when it reaches rock
bottom it is called DEPRESSION. When it picks up, it is called a phase of RECOVERY, and
when it peaks up, it is called phase of BOOM.
Recession is a phase of low profits, marginal firms tend to close down and unemployment
assumes diabolic proportion. Boom is phase of rising profits, investment tends to pick up and
factors of production are in heavy demand.
Economy moves in cycles is a macroeconomic issue which needs grasped not only by the
producers, but also by the govt.
VII. Theory of International Trade: Macroeconomics also studies trade among different
countries. Theory of international trade, tariff protection etc. are subject of great significance in
macroeconomics.
VIII. Inflation: It occurs when the general price level tends to rise over a period of time. Value of
money falls and real purchasing power of the people is reduced.
Galloping
Running
Walkin
Creepi
Classification of inflation is represented in the above diagram. Creeping inflation is regarded as
conductive to economic growth. Walking inflation occurs when the price rise becomes more
worked as compared to creeping inflation. In running inflation price increase at a faster rate, but
in hyper or galloping inflation factors of production become expensive because of level of economic
activity encourages. Such a situation may ultimately drive an economy down to the realm of
recession and depression.
IX. Budgetary deficit and fiscal policy: In the wake up privatisation and globalisation of the
world economies, budgetary deficit and related fiscal policy has emerged as a central issue of
macroeconomics. Direct participation of the govt. in the growth process is gradually reducing.
Budgetary expenditure of the govt. increased in her welfare activity. Expenditure is marked in

the area of defence, terrorism and maintenance of law and order. Subsidy is another important
component of government expenditure. In India govt. expenditure contributes more towards
consumption and less towards the production of goods and services. Fiscal deficit is assuming
gigantic proportion. Greater the borrowing greater is the compulsion. It works as a fuel that
inflames inflation. Alternatively the govt. may rely more on taxes. But when tax payers money is
spent by the govt. not on production, but consumption activities there is an obvious social unrest
that threatens political stability and overall economic activity in the country.
X. Interest Rates and Monetary Policy: Monetary policy involves monetary measures by the
govt. in terms of changing interest rate with a view to stimulating economic growth with stability.
It is also an important area of study of macroeconomics.
Above points are the broad areas of study of macroeconomics and major macroeconomic
issues of an economy.