Question

describe the basic problems that macroeconomics as science studies. Give a few illustrations

Answer 1

Macroeconomics studies the behavior of the entire economy. It studies the economy in totality.,As for eg macroeconomics studies national income and not individual income ,national savings,general price level in the country etc.Macroeconomic problems arise when the economy fail to achieve the goals of full employment , stability and at the same time economic growth.All these have effect on the economy.As for eg unemployment is the result of full employment not achieved,inflation is the result of less stability in the economy etc.Stagnant growth is the result of less economic growth.However all these problems are the result of more demand or less demand for gross production in the economy.Inflation is the result of more demand and unemployment is the result of less demand.Unemployment arises when all the factors of production who are in a position to produce ie willing and able to produce goods ,are not fully employed.As for eg, if there are 4 boxes of pizza and 10 people to have the pizza, only 4 can have and remaining 6 will not get pizza.When the economy is not attaining the goal of full employment ,there is unemployment.

Inflation is another macroeconomic problem.Sustained rise in price over a period of time is inflation.Due to rise in price,purchasing power of money falls and standard of living becomes low.Unemployment and inflation vary at different phases of business cycle.During the contraction phase there is unemployment because less is produced and during expansion phase there is inflation as more is produced.

Stagnant growth is another problem which occurs when supply does not increase.The macroeconomic goal of economic growth cannot be achieved if there is less production of goods and services in the economy.Production can be less because of the factors of production.As for eg if a person is lazy and does not want to work then less labor will be available for production.

Interest rate changes is another macroeconomic problem.Interest rate changes affect customers and business.Interest rates are charged by the banks for giving loans.Individuals will stop their demand of large amount when they have to pay high interest for bank loan.Thus macroeconomics help to solve problems of poverty,inflation,unemployment,stagnant growth , deficit in balance of payment etc.