Macroeconomics looks at whole economies across three very different timescales
Ask why unemployment jumped this year and you get one kind of answer; ask why some countries grew rich over half a century and you need a completely different one. Macroeconomists split their subject into short, medium and long runs, because the forces that matter change with the time horizon.
Macroeconomics studies how an economy behaves as a whole, whether regional, national or global. Instead of individual shoppers or companies, which are the territory of microeconomics, it tracks big totals: output, income, unemployment, inflation, consumption, saving, investment and trade. Of these, output, unemployment and inflation are the three central variables. The split between the two branches is baked into the discipline, since their methods and questions differ so much. Another key distinction is between closed economies and open ones that trade with the world.
Over a few years, the focus is the business cycle, the booms and slumps usually driven by shifts in overall demand, and this is where central banks and governments use monetary and fiscal policy to steady things. Across roughly a decade, supply-side factors take over. Output drifts towards a level set by the stock of capital, technology and the workforce, while unemployment settles back to its structural or natural rate. Competition rules and labour market policy can nudge those foundations. Over several decades, growth depends on building human and physical capital, innovation and population change, so relevant levers include education reform, incentives to save and support for research.
Measuring output is central. Everything produced and sold generates an equal amount of income, and the usual yardstick is gross domestic product. Adding income earned abroad, minus what foreigners earn locally, gives gross national income. In most places the two are close, but countries with huge foreign assets or debts can show a sizeable gap.
The field is generally dated to 1936, when John Maynard Keynes published his General Theory of Employment, Interest and Money and introduced national income accounting. The Swedish economist Knut Wicksell had laid groundwork earlier in Interest and Prices, published in 1898 and translated into English only in 1936, the same year. Since the Second World War, Keynesians, monetarists, new classical and new Keynesian thinkers have all shaped the mainstream.
Source: Macroeconomics
