Understanding the Definition, Purpose, and Scope of Macroeconomics

The scope of macroeconomics –  Economics is a type of science that has developed since ancient civilizations. Starting from such a simple form, economics can develop so that it becomes more complex and structured as it is today.

The scope of economics is very broad. Of course, if we discuss it as a whole, it might take quite a long time.

However, in this article we will discuss one part of economics, namely macroeconomics. Maybe those of you who are often involved in the world of economics are familiar with the term macroeconomics.

So what exactly is macroeconomics? For more details, see the review below.

Definition of Economics

Before we discuss about macroeconomics, it would be better if we also know what economics is. According to the Big Indonesian Dictionary or KBBI, economics has two different definitions.

The first definition, economics is a science that deals with the production, distribution, consumption of goods and also issues related to it such as labor, financing and also finance.

Then, for the second definition of economics in the KBBI is a science related to human social activities in the process of fulfilling life’s needs obtained from their environment.

Branch of Economics

Economics is divided into two branches, namely macroeconomics and microeconomics. Judging from the context, these two types of branches of economics have quite fundamental differences.

Where macroeconomics is more focused on the economy as a whole. Whereas for macroeconomics it is more towards individual economic units.

In addition, the difference between the two can also be seen from how economists emphasize the themes to be discussed. The emphasis for microeconomic theorists is usually on the behavior of economic agents as a whole.

Whereas those who adhere to microeconomic theory will emphasize individual or individual behavior. An example is how the behavior of a company that is located as a producer and consumer as well as a workforce in a more limited context.

Then there is another difference from the economic theory is the assumptions used. Where microeconomic theory is often also referred to as classical economic theory has the assumption that the market structure is a form of perfect competition, the information is perfect and also symmetrical.

In addition, there are also similarities in the input and output sections as well as rational economic actors who also aim to maximize profits. This theory also has an assumption that adjustments through instantaneous market mechanisms can be achieved in which money only functions as a means of transaction.

Thus, according to adherents of classical economic theory. The economic problem is only in the content of the offer.

The momentum of the Great Depression that occurred from 1929 to 1933 was also a milestone for the rise of macroeconomic theory, which was born as a critique of Smith’s classical theory. Adam Smith himself is the most popular figure in microeconomics.

The emerging macro theory was pioneered by John Maynard Keynes so that his followers are often referred to as Keynesians.

Contrary to the assumptions of the proponents of microeconomic theory, the Keynesians have the notion that the market structure has a monopolistic tendency with asymmetrical and imperfect information.

Then, for inputs and outputs that are used as exchanges, they can also be of various types. Keynesian also has the assumption that money can not only be used as a means of transaction, but money can also be used as a means of storing value.

Thus money has the possibility to get an advantage with more speculative actions. From some of these assumptions, it can be concluded that macroeconomics has a view that the role of the government is needed in the process of managing the economy with more monetary and fiscal policies.

 

 

Definition of Macroeconomics

Previously, we briefly explained what macroeconomics is. In this point, we will explain more deeply about macroeconomics.

Macroeconomics is a science that studies the economy as a whole. Macroeconomic studies specifically study matters related to the economy, but on a larger scale and as a whole.

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

In addition, macroeconomic studies can also be used to conduct a more thorough analysis of producers. Of course consumers will also not be left behind, in which macroeconomics can provide an analysis to them in the context of how to allocate their income to purchase a product and use a service.

Scope of Macroeconomics

There are several economic scopes that we will study together. But before that, we also have to remember again how the mechanism of macroeconomics works. In macroeconomics, which is often applied to target analysis, there are several important things. Starting from policies on economic growth, employment, inflation, country balance of payments and several other things.

This indirectly explains if macroeconomics teaches about an economy that exists in a country in a comprehensive manner, but will still be studied related to causal relationships with aggregate variables.

Then, for the scope of macroeconomics it is divided into three types. Now for more details, here are several types of macroeconomic scope.

1. Determination of the Level of State Economic Activity

The first scope of macroeconomics is as a determinant of the level of economic activity of the State. This is because macroeconomics has a fairly broad and complete scope, such as in the process of producing products, both in the form of goods and services. In this case there are a number of expenditure items such as the points below.

  • Corporate or investment expenses
  • government spending
  • Export as well as import
  • Household expenditure used for consumption

2. Government Policy

The problem of inflation and unemployment cannot be separated from the economy in a country. The government has also made various efforts to overcome these two problems, both through tests of fiscal and monetary policies.
Where fiscal policy is a set of steps taken by the government to be able to change the amount and structure of taxes.

The purpose of this fiscal policy is to be able to influence the country’s economic activities and also the community. Meanwhile, monetary policy is a set of policies that will be implemented by the government with the aim of influencing how much money is circulating in the community within the scope of the economy.

 

 

3. Comprehensive Expenses

Overall expenditure can also be referred to as aggregate spending. Where when these expenditures cannot reach the ideal level it will result in problems in the economy. When employment opportunities materialize, they can also help keep an eye on the inflation rate. Therefore, ideally aggregate spending could be at the required level.

Macroeconomic Objectives

The purpose of the existence of macroeconomics can have an influence on the economy in a country. There are several kinds of objectives of macroeconomics. Each of these goals will be used to be able to solve problems that arise in a country. So, for more details, here are some points of purpose of macroeconomics.

1. Helps Create Jobs

One of the policies produced in the macro economy is to help regulate the creation of jobs. That means the state can minimize the problem of unemployment.

When there is an increase in the unemployment rate it can also have a negative impact on a country. In the end, the high unemployment rate can also be a burden on the economy in the country.

2. Increasing domestic production

Much or little production capacity in a country also depends on the high or low amount of investment that can enter the country. Then, for investment itself also depends on the level of domestic savings.

Meanwhile, domestic saving depends on people’s income and interest rates. Therefore, in order to increase production capacity in a country, it can also be done by increasing the income of the people in that country, one way is to increase the productivity of the community.

3. Helps Stabilize Economic Conditions

Economic stability in a country includes several aspects. Starting from the stability of the price of goods, employment and also the level of income owned by the community. The existence of the application of macroeconomic policies can help stabilize the prices of goods and the availability of jobs. This in the end will be able to provide a fairly good impact for a country.

4. Helps Make the Balance of Payments Balanced

The existence of trade transactions with other countries can also affect the economic conditions that exist in that country. Therefore, the balance of payments conditions must also be balanced. Where some of the balance of payments components that are so important are such as monetary traffic, ongoing transactions and also the trade balance.

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5. Making Population Income More Even

Equal distribution of population income can occur with the distribution of processed natural resources and human resources. Equal distribution of income is expected to help increase consumption or people’s purchasing power. That way, a balanced and peaceful life without any riots can be realized more easily.

 

 

Macroeconomic Policy

Macroeconomic studies also deal with inflation and deflation, the unemployment rate, and job availability. In practice, macroeconomics also has several policies. So, for more details on what policies are in macroeconomics, here is a complete explanation.

1. Fiscal Policy

Fiscal policy regulates the income and expenditure of a country. A country’s income can be obtained from the taxes paid by each citizen. Not only that, state revenue can also be obtained through non-tax payments such as auctions, fines, gifts from other countries and gratuities.

2. Monetary Policy

Monetary policy is also a differentiator between macroeconomics and microeconomics. Where monetary policy has a function as a measure of how much funds have been issued through the central bank in a country. The more money circulation that occurs, the more it will affect the inflation rate.
In the end, this can help increase the price of a product. But conversely, when the velocity of money is less, the price of a product will also be cheaper.

This is what is often referred to as deflation. Where monetary policy can play an important role in people’s lives to be able to maintain the pace of economic growth in a country.

3. Supply Side Policy

Next, there is a supply side policy that can be used to balance the financial account of a company or country. It is undeniable that currently companies need experts in economics because all financial management processes, especially in the production sector, can be reduced to a minimum.

In addition, product quality can also be balanced with this policy. This will result in a higher quality product. In the Indonesian context, macroeconomics is a system that is used to provide an analysis of economic changes in this country that have the potential to impact companies, markets and society.

In addition, from the existence of macroeconomics, an explanation can also be obtained about the occurrence of an economic condition in Indonesia so that the best analysis results can be obtained.

Macroeconomic Problems in Indonesia

Some of the macroeconomic problems that occurred in Indonesia are as follows.

1. There is Interrupted Economic Growth

In the world of economics, macroeconomic problems can also have an impact on business, entrepreneurs and production. For example, such as large factories, companies to other business ventures.

When this happens, it can cause a company to experience difficulties so that bankruptcy occurs, even at worst, it disrupts economic growth.

When economic growth is disrupted, of course it will also cause a significant impact on other economic sectors.

2. High Unemployment and Poverty Rates

The macroeconomic problem that may be difficult to avoid is the high unemployment rate. This can happen because there are companies that cannot survive in the midst of existing competition, so they have to take action to lay off employees to maintain the company.

One of the causes of the bankruptcy of a company or business venture is because the company carries out a process of selling products aimed at the lower middle class.

Meanwhile, during difficult times, other sectors also decide to reduce employees. This will also further increase the value of unemployment so that it will eventually result in diminishing buying and selling power due to the absence of money circulation.

3. There is an Exchange Rate Crisis

The existence of foreign debt will also be able to cause macroeconomic problems such as exchange rate crises. This will also affect the country’s foreign exchange. It should also be noted that the country’s foreign exchange is one of the sectors that can get the worst impact.

In addition, this impact will also be felt by investors and companies that have cooperation with foreign companies or carry out export import sales.

4. There is Inflation

The existence of high inflation in this country will also be able to have a high enough influence on foreign debt which can also affect the banking world in Indonesia. Meanwhile, the most pronounced form of difficulty is liquidity problems. The impact is that there is a bottleneck in the sector due to the large burden of state forests.

So that’s a summary of macroeconomics . Starting from the understanding of the scope, objectives to the macroeconomic problems that exist in Indonesia have been explained in detail in this article.

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