OPPapers.com

Macro Economics

Keynesian Economics

Macroeconomics, branch of economics concerned with the aggregate, or overall, economy. Macroeconomics deals with economic factors such as total national output and income, unemployment, balance of payments, and the rate of inflation. It is distinct from microeconomics, which is the study of the composition of output such as the supply and demand for individual goods and services, the way they are traded in markets, and the pattern of their relative prices. At the basis of macroeconomics is an understanding of what constitutes national output, or national income, and the related concept of gross national product (GNP). The GNP is the total value of goods and services produced in an economy during a given period of time, usually a year. The measure of what a country's economic activity produces in the end is called final demand. The main determinants of final demand are consumption (personal expenditure on items such as food, clothing, appliances, and cars), investment (spending by businesses on items such as new facilities and equipment), government spending, and net exports (exports minus imports). Macroeconomic theory is largely concerned with what determines the size of GNP, its stability, and its relationship to variables such as unemployment and inflation. The size of a country's potential GNP at any moment in time depends on its factors of production-labor and capital-and its technology. Over time the country's labor force, capital stock, and technology will change, and the determination of long-run changes in a country's productive potential is the subject matter of one branch of macroeconomic theory known as growth theory. The study of macroeconomics is relatively new, generally beginning with the ideas of British economist John Maynard Keynes in the 1930s. Keynes's ideas revolutionized thinking in several areas of macroeconomics, including unemployment, money supply, and inflation. Keynesian Theory and Unemployment Unemployment causes...