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EMERGENCE OF MACRO ECONOMICS
MEANING:-
Macro Economics is that part of economic theory which
studies the economy in its totality or as a whole. It deals with
aggregates and averages. It gives the Bird’s Eye View of the
economic situation.
Since the subject matter of Macro Economics revolves around
determination of the level of income and employment it is also
referred to as the “Theory of Income and Employment”.
The subject matter of Macro Economics revolves around
Total employment, General price level, Aggregate Savings, Aggregate
supply, Aggregate demand, National Income, National Output,
Theory of Money etc.
Importance of Macro Economics
1. It helps in understanding the functioning of the economy:- It
explains how the economy functions as a whole and also tell us
how the national income is determined.
2. It helps us to achieve the goal of economic growth by achieving
higher GDP and higher levels of employment.
3. It helps us to bring stability in the price level:- It also suggests
policies to control inflation and deflation.
4. It also helps us to understand the problem of BOP (Balance of
Payments):- It helps us to identify the deficits in the BOP of our
country.
5. It gives solutions to the economic problems of poverty,
unemployment etc.
6. Macro Economics saved the world from the dangers of the Great
Depression
• EMERGENCE OF MACRO ECONOMICS.
, Macroeconomics, as a separate branch of economics, emerged
after the British Economist John Maynard Keynes published
his celebrated book “The General Theory of Employment,
Interest and Money” in 1936
Classical thinking/ failure of classical thought :-
• The dominant thinking in Economics before Keynes was
that all the labourers who are ready to work will find
employment and
• all the factories will be working at their full capacity.
• This school of thought is known as the classical
tradition/classical thought.
• They believed that supply will create its own demand.
• They believed that there won’t be any general unemployment.
The Great Depression of 1929 shattered this belief and the
subsequent years saw the employment levels in the countries
of Europe and North America fall by huge amounts.
Unemployment rate rose from 3% to 25% in the US
(Unemployment rate may be defined as the number of people
who are not working and are looking for jobs divided by the
total number of people who are working ).
GREAT DEPRESSION:-
The Great Depression started on 24th October 1929. It was
characterized by the Crashing of the stock market, Crashing of
the banking system, Rising unemployment, Falling prices,
Falling levels of income, Falling demand for goods, Unsold
goods, Closure of economic enterprises, Hunger, starvation,
Poverty etc.
KEYNES APPROACH TO GREAT DEPRESSION/ BIRTH OF
MACRO ECONOMICS:-
J. M. Keynes in his book unlike his predecessors examined the
working of the economy as a whole. He examined the working
of the economy in its entirety. He examined the
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