Question

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Q. 2. In present scenario, the importance of microeconomics is increasing day by day, in your

         Opinion, what are the three ways that we can use macroeconomic analysis.

Answer 1

• Price changes/ inflation: This is a change in the general price level of goods and services. Can be measured using prices indexes such as RPI (retail price index) and CPI (consumer prices index) which take a basket of goods that they think the typical household would by and analyse changes in the cost of buying that same basket of goods.
• Economic growth: This is usually measured in terms of GDP growth (total value of domestically produced goods and services) but there are other measures that can be used notably GNP (gross national product: GDP + net income from abroad)
• Unemployment: There are various ways to measure unemployment but the simplest one is the claimant count which is the number of people claiming unemployment benefits.

Important general macroeconomic indicators include:

• Real GDP growth
• Real per capita GDP growth
• Consumer price inflation
• Investment/GDP
• The ratio of M1, M2, or M3 to GDP (M1, M2, and M3 are various measures of the money supply)
• Public expenditure/GDP
• Unemployment %
• Foreign exchange reserves
• Foreign debt
• Balance of payments information such as the current account deficit/surplus, trade deficit/surplus, net direct investment, and net portfolio investment.

Taken together these indicators should put together a pretty clear picture of the economy.

The three macroeconomic goals of full employment, stability, and economic growth are widely considered to be beneficial and worth pursuing. Each goal, achieved by itself, improves the overall well-being of society. Greater employment is typically better than less. Stable prices are better than inflation. Economic growth is better than stagnation.

However, the pursuit of one goal often restricts attainment of others. For example, policies that promote economic growth might create unemployment or policies that improve stability might limit economic growth. Macroeconomic goals are also often in conflict with the microeconomic goals of efficiency and equity.

The pursuit of these three macroeconomic goals is inherently an act of normative economics. In fact, the "norm" part of term normative economics is synonymous with the word "goal." Normative economics is essential to the pursuit of economic goals.

In a mixed economy, the pursuit of these goals is largely directed by governments. This, of course, brings into play the wonderful world of politics and never-ending debates over which of these three macroeconomic goals is most worth pursuing with economic policies.

As the discussion turns to politics and policies, two viewpoints tend to emerge--liberal and conservative. Generalities are, of course, fraught with exceptions. However, with that caution in mind, note that each of the two political views have historically placed greater emphasis on the attainment of some goals over others.

Liberals have tended to seek full employment over stability and economic growth. Conservatives, in contrast, have sought economic growth and stability, especially price stability, more so than full employment.