Macroeconomics/Why Macroeconomics

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Often, we want to measure the well being of a group of economic agents, who engage with each other. Often, such engagements occur within the bounds of a country or nation. Therefore, macroeconomics is usually concerned with economies of countries as a whole. How do we measure well being? Economists have tried to relate wealth to well being. Some correlation between wealth and well being does seem to exist, the relationship is not clear and not definite. However, macroeconomics is concerned with the measurement of wealth because it is easier to measure. It is assumed, that well being will be related to wealth.

Macroeconomics also deals with aggregates, and not individuals. Therefore, in order to understand the economy, we need to define the quantities we will be interested in. To begin with, let us look at the markets that are studied in macroeconomics.

  • Market of current goods and services
  • Market for future goods and services
  • Market for factor inputs
  • Market for finance

Each of these markets is an aggregate of smaller markets. For example, under the market of goods and services, there will be smaller markets for various industries.

After defining the markets, we move to measuring the aggregate income. Aggregate income is related (in fact is equal to) the aggregate goods and services produced. This measure is the GDP. More about this in the next chapter which deals specifically about measuring aggregate output.