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What Is Macroeconomics - Assignment Example

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In the paper “What Is Macroeconomics?” the author looks at the Great Depression of the pre-WWII era, which gave birth to macroeconomics. This period saw the devastating collapse of the stock market, a severe increase in unemployment and the plunge of price levels in the US…
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What Is Macroeconomics
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Download file to see previous pages While microeconomics is concerned with the factors underpinning the economic life of individual entities like families and small businesses, macroeconomics looks into the various elements that move or determine the economy in its entirety or what some call an aggregate economy. Macroeconomics is useful because it allows a predictive view of how market forces affect the economy and advises governments appropriate economic policies and gives private individuals and business entities a glimpse of what the future holds economically.
The term macroeconomics did not exist prior to the Great Depression but there was a collective set of theories that were used to study the various workings that influenced the aggregate economy. Economists today refer to those theories retroactively as classical macroeconomics. Classical macroeconomics that relied greatly on the law of supply and demand was largely the theories espoused by the likes of David Ricardo, John Stuart Mill, Alfred Marshall, Arthur Pigou, and Francis Edgeworth. These theorists generally subscribed to Say’s Law which believes that supply creates its own demand. However, their inability to explain the occurrence of the Great Depression paved the way for the new macroeconomics theory called the Keynesian Theory of Macroeconomics which came into being after John Maynard Keynes, a British economist, published a book entitled The General Theory of Unemployment, Interest, and Money in 1936 (Keynesian Economics).
Keynes economics theory became popular largely because of the inability of the classical theory of economics failed to explain convincingly the fall of the US economy, and eventually the world economy, in the Great Depression. While the classical macroeconomics believed that the economy is self-correcting - that is, even though demand generally declines and causes severe fluctuations in the market, it will eventually correct itself. ...Download file to see next pagesRead More
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