Macroeconomics: Definition, Purpose, Scope, Policy & Application in Indonesia

Understanding Macroeconomics – Economics is a science that has developed since ancient civilizations. Starting from the simplest form, economics has developed to become more complex and structured as it is today.

Discussing economics will not be enough of our time. This is because this science has a very broad scope and its development is quite fast. One type of study in the world of economics that is popularly discussed is Macroeconomics . What’s that? Let ‘s get to know each other further!

A. Definition of Economics

Before discussing Macroeconomics, we need to first equate perceptions of what economics is. The Big Indonesian Dictionary (KBBI) has two definitions in this regard. The first definition, economics is the science of the production, distribution, and consumption of goods, as well as various issues related to it, such as labor, financing, and finance.

While the second definition of economics in the KBBI is the science of human social activities in meeting the necessities of life obtained from their environment. Sinaumed’s can learn everything about economics in the Introduction to Economics book below.

 

B. Branch of Economics: Micro and Macro Economics

The two main branches of economics are Macroeconomics (Macroeconomics) and Microeconomics (Microeconomics). As reflected in their names, these two economic theories are contradictory in content. In short, Macroeconomics focuses its study on the economy as a whole and total. Meanwhile, microeconomics is a study that examines individual economic units.

The differentiation between the two economic theories is also based on how economists emphasize the theme of their discussion. The emphasis of adherents of Macroeconomic Theory is on the behavior of economic agents as a whole (aggregate). The book Macroeconomic Theory by Telisa Aulia Falianty will be the right choice for Sinaumed’s to learn more about macroeconomic theory.

Meanwhile those who adhere to Microeconomic Theory emphasize their analysis on individual or individual behavior. For example, how is the behavior of companies as producers, as well as consumers and workers in a limited context (industry) as described in the book Theory of Microeconomics Edition 3 by Muh Abdul Halim.

Another difference between the two economic theories is the assumptions used. Microeconomic Theory—which is often also referred to as Classical Economic Theory—assuming that the market structure is a form of perfect competition, the information is perfect and symmetrical, there are similarities (homogeneous) in input and output , and economic actors are rational and aim to maximize profit.

This theory also conveys the assumption that adjustments through market mechanisms can be achieved instantly, and money only has a function as a transaction tool. Thus, according to adherents of the Classical Economic Theory, economic problems are only on the supply side. Adam Smith is a popular economic figure as the motor of this Microeconomic Theory.

The momentum of the Great Depression that occurred in the period 1929-1933 became a milestone for the rise of Macroeconomic Theory. This theory was born as a criticism of Smith’s Classical Economic Theory. This Macroeconomic Theory was pioneered by John Maynard Keynes, because of that the followers of this theory are then called Keynesians.

Contrary to the assumptions of the proponents of Microeconomic Theory, the Keynesians assume that the market structure has a monopolistic tendency with asymmetrical and imperfect information. The inputs and outputs used as exchanges also vary (heterogeneous). Keynesian also assumes that money is not only seen as a transaction tool.

However, money can also be used as a store of value. Thus, money is very likely to be used to gain profit through speculative actions. From the series of assumptions above, those who agree on Macroeconomics are of the view that the government’s role is needed in managing the economy through monetary and fiscal policies.

C. Definition of Macroeconomics

For this reason, Macroeconomics is often used as an instrument for analyzing and designing a series of policy targets related to inflation, employment, economic growth, and a sustainable balance of payments.

This economic study can also be used to analyze producers as a whole. Consumers are also not left behind, Macroeconomics analyzes them in the context of how to allocate income to buy goods and use services. To study macroeconomics, Sinaumed’s can start through the book Macroeconomics: An Introduction by Karhi Nisjar which explains the important foundations of this science.

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D. Macroeconomic Objectives

There are several types of macroeconomic goals and they affect a country’s economy. Each of these goals is aimed at solving problems that arise in a country. The following are some of the objectives of implementing Macroeconomic policies:

1. Creating Jobs

The policies produced in Macroeconomics aim to regulate job creation. Thus, the state is able to minimize unemployment. This is because high unemployment will have a negative impact on a country. The high unemployment rate will ultimately only be a burden to the country’s economy.

2. Making High Domestic Production

Much or little production capacity in a country depends on the high or low amount of investment coming into the country. While investment depends on the level of domestic savings.

Then, domestic saving depends on people’s income and interest rates. Therefore, in order to increase production capacity in a country, it can be done by increasing people’s income. The method? Community productivity is increased.

3. Creating Stable Economic Conditions

Economic stability in a country includes stability in prices of goods, employment, and people’s income levels. The implementation of Macroeconomic policies aims to stabilize prices of goods and employment. In the end, this condition will have a good impact on a country.

 4. Make Balance of Payments Balanced

It is a necessity that every country must conduct trade transactions with other countries. This practice can also ultimately have an impact on the country’s economic conditions, so the balance of payments must be balanced. Several components of the balance of payments that are important to know are monetary traffic, the current account, and the trade balance.

 5. Making Resident Income Equal

Equal distribution of population income can occur with equal distribution of processed natural and human resources. Equal distribution of income is expected to be able to increase the level of consumption or people’s purchasing power. Thus, a balanced and peaceful life without riots can be realized.

E. Scope of Macroeconomics

1. Determination of the Level of State Economic Activity

The ability of a country to produce goods and services is described in Macroeconomics. Thus this scope also has a number of expenditure items, namely:

  1. Company expenses (investment)
  2. government spending
  3. Export and import
  4. Household expenditure for consumption

 2. Government Policy

The problems of inflation and unemployment are inseparable from a country’s economy. The government has also made various efforts to overcome it, both through fiscal and monetary policy instruments. Fiscal policy is a set of steps taken by the government to change the amount and structure of taxes.

The goal is to influence the economic activities of the state and society. Meanwhile, monetary policy is a set of policies implemented by the government to influence how much money is circulating among the people in the economic corridor.

3. Aggregate Expenditures

Aggregate spending means overall spending. If this expenditure cannot reach the ideal level, the result is a problem in the economy. The realization of employment opportunities is able to monitor the rate of inflation. Therefore, ideally aggregate expenditure can be at the required level.

F. Policy in Macroeconomics

In studying policies in macroeconomics such as fiscal and monetary policies, Sinaumed’s can obtain information through the book Macroeconomics: An Introduction to Management by Detri Karya.

Macroeconomic Studies examine matters relating to inflation and deflation, the unemployment rate, and the availability of jobs. In practice, Macroeconomics has the following policies:

 1. Fiscal Policy

Income and expenditure of a country is regulated in this policy. State income or income can be obtained from taxes paid by every citizen. Apart from that, other state revenue coffers come from non-tax, such as auctions, fines, gifts from other countries, and gratuities.

 2. Monetary Policy

This policy is the difference between Macro and Micro Economics. Monetary policy serves to measure how much funds have been issued by the central bank in a country. The more money circulation that occurs, the more it will affect the inflation rate.

In the end it will increase the price of a product. Conversely, if the velocity of money is small, the price of a product is cheaper. This is what is called deflation. Monetary policy has an important role in people’s lives, namely to maintain the pace of economic growth in a country. Such are the benefits of studying economics, namely in order to understand its application in our daily activities.

 3. Supply Side Policy

The function of this policy is to balance the balance sheet in a company or country. It is natural that currently the average company needs an expert in economics. With this knowledge, it is hoped that all financial management processes, especially those related to production, can be reduced to a minimum.

In addition, product quality can also be balanced. Thus the resulting product will be of higher quality. In the Indonesian context, Macroeconomics is a system for analyzing economic changes in the country that have the potential to affect companies, society and markets.

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From Macroeconomics we can also get an explanation of changes in economic conditions in Indonesia, in order to get the best analysis results.

G. Objectives of Macroeconomics

Indonesia also has its own goals in implementing macroeconomic policies in the country. According to the Ministry of Finance, the goals of Macroeconomics in Indonesia are as follows:

1. Increase national income

By knowing the amount of Indonesia’s national income, it can measure economic growth more clearly. Economic policies taken can also be more effective and efficient.

2. Increase production capacity

Increasing national production capacity will be able to increase Indonesia’s economic development. One way to increase production capacity is to improve the situation for investment. Thus, incoming investment can affect national productivity.

3. Create jobs

The existence of job opportunities due to increased national productivity will in turn be able to increase production capacity. This is where the role of macroeconomic policy in Indonesia is to attract investors to want to invest their capital. Thus, new jobs are created.

4. Control inflation

One of the causes of inflation is due to too much demand for a commodity. As a result, commodity prices soared. Through Macroeconomics, Indonesia is able to carry out cash ratio policies, open market politics , and discount politics. The goal is one, to stop the rate of inflation in the country.

5. Creating economic stability

Macroeconomic analysis in Indonesia can be used to maintain the country’s economic stability. This stable condition is important. Why? So that economic actors abroad can trust Indonesia so that later they want to invest in this country.

Indonesia’s economic stability can only be achieved if the two macroeconomic variables run in balance. The two variables are the balance of payments and the level of demand for inventory.

6. Make the foreign balance of payments in a balanced position

Analysis of Indonesia’s Macroeconomics needs to be carried out with the aim of seeking balance in the foreign balance of payments. The balance of payments itself contains a summary of various transactions, such as sales and purchases of goods and services, grants from abroad, as well as financial transactions between residents at home and abroad.

The foreign balance of payments must be in a balanced position to avoid a deficit. In learning more deeply about macroeconomic objectives, both from individual aspects to overall activities in the economy, the book Microeconomics An Introduction is the right choice.

 

Macroeconomic Problems in Indonesia

Macroeconomics also has an influence on Indonesia’s business climate. This has become a certainty, because the rule that applies is that the magnitude of economic changes can have an impact on society as well as companies and their markets.

Macroeconomics also has a close relationship with state financial issues. This is because this concept is capable of influencing price stability, achieving balance, employment, and economic growth. However, in the business context in Indonesia, there are several macroeconomic problems that often arise.

First, there are problems with banking and bad credit. Second, there is a domestic exchange rate crisis against Indonesia’s foreign debt. The third is the issue of unemployment and poverty. Finally, the macroeconomic problem that often arises in the business context is the question of economic growth itself.

In the span of the history of law enforcement in Indonesia, many questions arise about non-legal losses such as abandoned assets turning into old machines, thousands of employees being laid off and other things if a crime occurs. Therefore, the book Microeconomic Analysis of Indonesian Criminal Law is here to answer this question.

 

Conclusion

In closing this review we need to know how important it is to know and learn about Macroeconomics. Because the focus of the study of this branch of economics is the economy as a whole, so by studying it we can know the macroeconomic aspects both at the state level and the people around us.

For example, we can understand what are the elements used by the government to determine various policies in the Indonesian economy. In this way, we can participate in analyzing where the policy is headed and can be prepared to adapt.

Then, we can appreciate products that come from natural resources more. Knowing the strategic role of natural resources in a country’s economy—in the macroeconomic corridor—allows us to be frugal in using processed products.

Next, by understanding the study of Macroeconomics, we can know about the free market and how the government’s policy towards it. In this way, we can be more vigilant when participating in markets that cross continents and country boundaries.

Finally, by learning about Macroeconomics we can be more aware of the phenomena of marginalized communities and poverty. With that we can take an active role in alleviating their problems with strategic and systematic steps.

Thus a complete review of Macroeconomics and how it is applied in Indonesia. It should be remembered that the strength of the domestic economy is supported by various types of commodities, both originating from industry, natural resources, and so on. Well-managed domestic resources will play a significant role in our economic development.