Economics is one of the branches of social sciences that is tied to the production, distribution and consumption of goods and services and examines people’s decisions at the micro and macro levels; This science includes the two main branches of microeconomics and macroeconomics, which we will continue to introduce these two branches, especially macroeconomics. For better and complete learning of this concept, we suggest you to participate in the macroeconomics course of Rahvard Academy.

What is microeconomics?

Microeconomics has a part-to-whole approach and tries to examine how to allocate resources and pricing in the decisions of people and businesses, so it focuses on concepts such as supply and demand and other factors that determine prices. In fact, in this way, microeconomics tries to investigate the effect of changes in one variable on other variables. The purpose of microeconomics is only to study these factors and does not necessarily provide a solution.

What is macroeconomics?

Unlike microeconomics, macroeconomics has a whole-to-part approach; That is, by studying the decisions and policies of the governments, it examines the economic performance at the macro level. In fact, instead of examining the behavior and decisions of individuals and companies, macroeconomics studies the general state of industries and the economy.

Calculating inflation rate, economic growth rate, gross domestic product (GDP) and how it is affected by unemployment rate, national income and price level are among the topics that macroeconomics deals with.

The important thing about  macroeconomics  is that this branch emphasizes the correlation of economic variables with each other. For example, it tries to study the relationship between unemployment rate and inflation. For this reason, many economic enterprises and governments use this branch to determine their financial policies.

The emergence of macroeconomics

Compared to microeconomics, modern macroeconomics is an emerging phenomenon that dates back to the 1930s and the occurrence of a great economic recession. In the 1930s, with the decline in effective demand, a severe economic depression was formed, which severely affected economic cycles. In such a situation, John Maynard Keynes presented his analytical models of the necessity of government intervention to determine appropriate policies and improve the economic situation. Because of his services to economics, John Keynes is known as the father of macroeconomics.

In the past, there were no centers that provided comprehensive data on the economy; For this reason, macroeconomics did not find any meaning. Currently, with the existence of some economic data, they can be studied according to historical patterns and predictions can be made, but these predictions will not necessarily come true; Because human sciences are based on human behavior and human behavior cannot be predicted most of the time.

The most important research areas of macroeconomics

Macroeconomics has relatively broad research areas, but the most important areas that represent this field are:

1. Long-term economic growth  , which examines issues such as national income and overall changes in the level of employment.

2. The short-term business cycle  examines the causes and consequences of short-term fluctuations in national income and the employment situation.

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long-term economic growth

An increase in total production in an economy is called economic growth. Economists who study the economy at the macro level try to support economic policies that promote progress and improve the living standards of people in a society. For this purpose, they try to find factors that delay economic growth. Fixing these factors will improve economic performance.

Usually, growth is a function of human resources, physical assets and labor, and technology; Therefore, improving the quantity or quality of labor forces, the tools they use, and the instructions they use to combine labor, capital, and raw materials will lead to an increase in economic efficiency.

Short-term business cycle

Business cycle refers to regular and regular fluctuations that occur at the macro level of the country’s economic activities. Each business cycle includes a period of prosperity and a period of recession, which is represented in the first stage of prosperity in all economic sectors, and after that, the period of recession will occur. In the short-term business cycle, all the factors affecting the economy of a country in a short-term period of time are examined. Understanding the different mechanisms of the business cycle allows governments to make better policies at the macro level. Also, knowing the different stages of this cycle helps investors to make more informed economic decisions.

Questions raised in the field of macroeconomics

Macroeconomics tries to identify the economic driving factors by examining the economic performance of a country and in this way find a solution to improve its performance. Therefore, macroeconomics deals with the structure and performance of the entire economy, not the behavior of individuals and companies. Some of the most important questions that arise in this area are:

• What factors cause unemployment?
• What factors cause inflation?
• What factors cause or stimulate economic growth?
• What are the optimal living conditions of people and how can these conditions be improved?
• How much is the total cost of living in a country and how can it be managed?
• What are the methods of calculating, controlling and monitoring financial markets and determining monetary and financial policies?

The most important goals of macroeconomics

Among the goals of macroeconomics in order to improve the standard of living and well-being of the people of a society, are:

Job creation and unemployment rate reduction

This important thing happens when people who are looking for work or working are employed in the direction of production and value creation, so that the amount of production and economic productivity increases as much as possible.

Price stability and low inflation

An increase in the general price level (including the price of goods and services) means inflation. Therefore, the most important goal of the central bank is to maintain price stability. For this purpose, policies are made by the central bank, among which contractionary policies can be mentioned.

Non-inflationary economic growth in the long run

Continuous and stable growth in the long term without considering inflation is one of the most important goals of macroeconomics and governments, which is measured by the Gross Domestic Product (GDP) index. Sustainable economic growth is the ultimate goal of all economies in the world.

Fair distribution of income in society

A healthy economy is an economy in which the income of different strata of society does not differ significantly. The goal of governments based on macroeconomics is to distribute the wealth of a country fairly among different strata of society as much as possible.

Balance of payment accounts

In simple terms, the balance of payments is the difference between a country’s exports and imports. Trade imbalance occurs when there is no balance between the country’s exports and imports. In case of trade dispute, the country’s trade situation should be investigated. Of course, there are extensive discussions about this, but in this article we will be satisfied with this.

The most important macroeconomic concepts

For a better understanding of macroeconomics, it is better to be familiar with the important and basic concepts of this field. In the following, we will introduce you some of the most important concepts of macroeconomics:

swelling

In terms of economics, the increase in the general level of prices (the price of goods and services) in a certain period of time is called inflation. Inflation reduces people’s purchasing power and destroys the balance between demand and liquidity available to buy goods or services. There are different inflation indices that are calculated according to the type of goods and services used. The most important inflation indicators are:

Consumer Price Index ( CPI ) : It is an index that measures any changes in the price of goods and services used by households and is the best measure to measure the purchasing power of the people of a country.

Wholesale Price Index ( WPI ):  It is an index that calculates the changes in the price of goods and services at the level of major producers and sellers. In fact, this index shows the price changes of goods and services before the retail stage.

Producer Price Index ( PPI ):  PPI is a measure that instead of calculating changes in the costs paid in exchange for receiving goods and services by consumers, calculates the change in prices set by producers during the different stages of production of goods or services.

Interest rate The interest rate is the amount of fees that you have to pay in exchange for getting a loan or borrowing money. The interest rate is usually a percentage of the total amount of money or loan received. Also, every person will receive interest by putting money in the bank. The central bank is responsible for determining the interest rate. The central bank can change the interest rate according to the economic conditions of the country. For example, in the conditions of economic prosperity, in order to reduce prices and prevent inflation, it increases the interest rate. Also, during the recession, in order to create economic prosperity, it decides to reduce the interest rate.

The unemployment rate

The unemployment rate shows the percentage of the country’s population who are ready for employment but are unemployed. The unemployment rate shows the inability of the economy to create jobs for people who are ready to work. Retired people, people who are under education or training, disabled people, elderly people or children are not included in the category of unemployed people. The high unemployment rate shows that a significant part of the society does not have a fixed income, and this causes their desires to be limited only to meeting basic and basic needs. The increase in supply and decrease in demand by these unemployed people will lead to a decrease in prices, closure of businesses and, as a result, an increase in unemployment. On the other hand, a low unemployment rate means a stable and suitable income for citizens and their ability to satisfy desires beyond basic needs. This will cause people to actively participate in the economy and create more demand, and we will see economic prosperity in such a society.

Gross National Product ( GNP )

Gross national product refers to the total value of goods and services that are produced by the nationality of a country during a certain period of time (usually one year). Note that this index includes all people of a country, even a person who lives abroad. For example, if an Iranian person lives in England, his income is considered as part of Iran’s GDP. The calculation of the GNP index depends on several factors, but if the resulting number is based on economic facts, it can be considered as a good measure to evaluate economic growth.

gross domestic product ( GDP )

GDP refers to the total value of final goods and services that are produced within the borders of a country during a certain period of time (usually a year and sometimes seasonally). GDP is the most important and common way to measure the economic performance of a country. It should be noted that in the definition of GDP, the final word is very important; Because in the calculation of this index, the price of goods and services that are available to the final consumer and are not used during the production process of other goods are considered.

Among all the things that are involved in the calculation of GDP, the foreign balance is of particular importance. GDP increases when the total value of goods and services supplied to foreign countries exceeds the total value of foreign goods and services purchased by domestic consumers. In this case, the country will have a trade surplus. If the opposite of this happens, the country will have a trade deficit and the GDP will also decrease.

GDP per capita is obtained by dividing GDP by the population of a country. This measure shows how wealth is divided among the people of a society and measures their well-being.

The important thing about GDP is that high GDP is not necessarily a sign of economic prosperity in a society. Because it is possible that despite the high GDP and the existence of job opportunities, the per capita GDP is low, and this means that the wealth is not properly distributed among the members of the society and is only available to a part of the members of the society.

Economic policies

As we said, governments or central banks, according to different economic conditions, must take measures to overcome this crisis and reach a favorable and stable situation in order to achieve their economic and social goals. Monetary and financial policies are among the measures that governments take help from in critical economic conditions. In some cases, these policies are applied in a coordinated manner.

Monetary policies

Monetary policy is the relationship between the total money supply and the interest rate. Determining monetary policies in each country is the responsibility of the central bank of that country. Central banks determine the country’s monetary policies based on macroeconomic policy and paying attention to growth rate parameters, unemployment rate, inflation rate, etc. The implementation of monetary policies by the central bank is carried out through the control of bank deposit rates, interest rates, rediscount rates and quantitative and qualitative credit control. There are two types of monetary policies, expansionary and contractionary.

Any policy and action that leads to an increase in money supply in the country is called an expansionary policy. On the other hand, all policies and solutions that reduce the money supply are called contractionary policies.

During economic recession, central banks try to help increase demand and production and ultimately economic prosperity by determining expansionary policies and more money supply. Also, in inflationary conditions, they try to reduce the inflation rate by setting contractionary policies and reducing the money supply.

Financial policies

Fiscal policies represent the performance of the government regarding the level of purchases, transfer payments and the tax system. In fact, the amount of government spending and tax receipts determine the financial policies of a country. Therefore, this policy is determined by the government; Although sometimes central banks accompany the government in this regard. Fiscal policies are applied in three ways: neutral, expansionary and contractionary.

Neutral financial policies are determined when the society is in economic stability and there is no news of irrational inflation and stagnation, and the employment status of the people in the society is also at a normal level. In such a situation, the government can spend all the tax it receives on its expenses.

In contractionary fiscal policy, the government tries to curb inflation by reducing its expenses, including implementing construction projects, providing health, welfare and educational services, paying subsidies and increasing taxes. In some cases, central banks accompany the government by raising interest rates and collecting liquidity from the community.

Expansionary fiscal policy is determined during economic recession; When the purchasing power of the people and the amount of demand for shopping decreases drastically. In such a situation, the government, by increasing its expenses and reducing the taxes received, tries to create economic prosperity in the society by increasing the income of the people.

Macroeconomics and investment

Many people think that macroeconomics has no effect on investment and that to have a successful investment, it is enough to know about the company or industry in which you invest, but this idea is not always true; Because there are systematic risks that are caused by the macroeconomic situation and can have significant negative effects on your investment portfolio.

In general, for investments whose assets are sensitive to macroeconomic indicators such as interest rates, paying attention to financial and monetary policies and macroeconomics is of great importance. For example, to invest in a fixed income fund that consists of fixed income bonds and its yield is proportional to the approved bank rate, paying attention to macroeconomic indicators will bring you better results; But regarding personal investments, such as buying shares, where the conditions of each company become important alone, paying attention to microeconomic indicators will give the investor a more accurate result; Although the state of industries is also affected by macroeconomic indicators and should not be neglected.

Conclusion

Macroeconomics is one of the branches of economics that, unlike microeconomics, has a whole-to-part approach and examines the economic performance of a country at the macro level. Governments and central banks try to formulate policies that will lead to better economic performance and increase the level of public welfare by studying macroeconomic indicators. Also, investors can discover the best investment opportunities by studying macroeconomics and paying attention to monetary and financial policies so that they can get the most returns. In this article, we tried to briefly introduce you to macroeconomics and its basic concepts, but to get more information in this area and how macroeconomics affects financial markets, you can participate in the macroeconomics training courses to understand Get a better understanding of government policies and their impact on economic variables.