What is

Macroeconomics - Explanation and definition of Macroeconomics

What is Macroeconomics?

Macroeconomics is the economic discipline that deals to study and define the economic policies for well overall functioning of the economy, relying on a series of analysis tools and macroeconomic indicators such as Gross Domestic Product (GDP), trade balance, employment rate or inflation among others indicators.

The science of economics studies how to administer and manage limited resources to meet human needs, with this approach economy studies that administration and management from two different perspectives; microeconomics and macroeconomics, as its name suggests microeconomics deals with the proper functioning of individual economic agents (micro) such as a person, a family or a business, on the other hand macroeconomics deals with good overall (macro) performance economy of a region, country or continent. Therefore we affirm that macroeconomics has a global perspective and microeconomics has an individual perspective, macro uses global indicators such as the Gross Domestic Product of a country and micro uses individual indicators as the ratio of sales of a particular company.

The main function of macroeconomics is to analyze, search and establish criteria and recommendations for fiscal and monetary policies that directly affect the overall functioning of an economy. So macroeconomists seek to understand the variables that affect and operate a global economy as a whole, in order to use them to improve economic growth and hence the welfare of society.

Indicators and macroeconomic variables

As we mentioned above macroeconomics studies the overall functioning of the economy of a region, country, continent or even globally world, it uses a series of variables and indicators which monitored regularly in order to define the necessary economic policies to improve economy and social welfare, among existing indexes and macroeconomic variables we can cite three main groups:

  • Growth

  • Rates

  • Employment


They refer to the set of variables and indicators that monitor and indicate the positive or negative developments in the economy of a region, country or continent. We can mention among the most important indicators GNP (gross national product) and GDP (Gross Domestic Product)

  • GNP - gross national product represents the monetary value of which produces a country added to the income generated by exchanges between countries (exports-imports).

  • GDP - Gross domestic product represents the monetary value of all goods and services produced by a region, country or continent in a given period, GDP is the most commonly used macroeconomic indicator to measure economic growth of a country, when we hear on the news or read in the newspapers that the United States, United Kingdom or China grew 2.4% it refers that its GDP has increased that amount respect last year.

Macroeconomic policies seeking to improve these indicators due directly representing the economic growth of a country and thereby improving the living standards of the population.


They refer to the set of indicators and variables that monitor and indicate the evolution of prices in a given period of time for a region, country or continent.

  • CPI – Consumer Prices Index indicates the monetary value of a set of goods and services commonly used by the habitants of a region, the list of products considered is extracted by using surveys which asked a representative proportion of products and services that population generally used, that list is called basket or shopping cart where products and services such as gasoline, milk, train ticket or the power supply is included.

  • Inflation – Represents CPI increase of a period of time to another, so when we read that annual inflation was 2% that indicates the average prices of the products and services most commonly used by citizens has risen this percentage.

  • Deflation - Unlike inflation CPI represents the decrease in a period of time.

Macroeconomic policies seek to stabilize inflation within set margins, due it has both positive and negative effects. For example the European Central Bank aims to keep global inflation of Europe member countries amounting to around 2% and constant over time.


They refer to the set of indicators and variables that monitor and indicate the evolution of employment and hence economic activity in a region, country or continent.

  • Active Population - Represents the number of people who have jobs or are actively looking for him, this figure does not include all those who can not and will not work such as pensioners or students.

  • Unemployment - Represents the number of people who want and can work but can not find a job.

  • Unemployment rate - the index is obtained by dividing unemployment by the active population.

  • Activity rate - the index is obtained by dividing the active population by the total population.

Macroeconomic policies seek to minimize unemployment and increase active population.

Knowledge of these and other macroeconomic variables are essential to implement measures to correct or improve the functioning of political economy, to do this governments have public institutions which aim to define, calculate and analyze these variables and indicators with the ultimate goal of implementing macroeconomic policies that directly affect the global economy. So in terms of these variables and certain macroeconomic theories governments increase or decrease taxes, launch infrastructure investments, provide subsidies to certain sectors, increase the number of coins and banknotes in circulation, etc ... The result of these policies has vary the previous indicators by rebuilding new actions with the overall goal of improving economic growth of a country and / or social welfare.

Now that you know what is macroeconomics, did you know that the world's GDP in the last 50 years has increased about 60%? in 1960 the world's GDP was valued at 1.34 trillion and currently are prowling the figure of 75 trillion.