✍️✍️✍️ Macroeconomics Internal Analysis

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Macroeconomics Internal Analysis



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Macroeconomics- Everything You Need to Know

Growth is commonly modeled as a function of physical capital, human capital, labor force, and technology. Superimposed over long term macroeconomic growth trends, the levels and rates-of-change of major macroeconomic variables such as employment and national output go through occasional fluctuations up or down, expansions and recessions, in a phenomenon known as the business cycle. The financial crisis is a clear recent example, and the Great Depression of the s was actually the impetus for the development of most modern macroeconomic theory. While the term "macroeconomics" is not all that old going back to the s , many of the core concepts in macroeconomics have been the focus of study for much longer.

Topics like unemployment, prices, growth, and trade have concerned economists almost from the very beginning of the discipline, though their study has become much more focused and specialized through the 20th and 21st centuries. Elements of earlier work from the likes of Adam Smith and John Stuart Mill clearly addressed issues that would now be recognized as the domain of macroeconomics. Macroeconomics, as it is in its modern form, is often defined as starting with John Maynard Keynes and the publication of his book The General Theory of Employment, Interest, and Money in Keynes offered an explanation for the fallout from the Great Depression , when goods remained unsold and workers unemployed.

Keynes's theory attempted to explain why markets may not clear. Prior to the popularization of Keynes' theories, economists did not generally differentiate between micro- and macroeconomics. The same microeconomic laws of supply and demand that operate in individual goods markets were understood to interact between individuals markets to bring the economy into a general equilibrium , as described by Leon Walras. The link between goods markets and large-scale financial variables such as price levels and interest rates was explained through the unique role that money plays in the economy as a medium of exchange by economists such as Knut Wicksell, Irving Fisher, and Ludwig von Mises.

Throughout the 20th century, Keynesian economics, as Keynes' theories became known, diverged into several other schools of thought. The field of macroeconomics is organized into many different schools of thought, with differing views on how the markets and their participants operate. Classical economists held that prices, wages, and rates are flexible and markets tend to clear unless prevented from doing so by government policy, building on Adam Smith's original theories.

Keynesian economics was largely founded on the basis of the works of John Maynard Keynes, and was the beginning of macroeconomics as a separate area of study from microeconomics. Keynesians focus on aggregate demand as the principal factor in issues like unemployment and the business cycle. Keynesian economists believe that the business cycle can be managed by active government intervention through fiscal policy spending more in recessions to stimulate demand and monetary policy stimulating demand with lower rates.

Keynesian economists also believe that there are certain rigidities in the system, particularly sticky prices that prevent the proper clearing of supply and demand. The Monetarist school is a branch of Keynesian economics largely credited to the works of Milton Friedman. Working within and extending Keynesian models, Monetarists argue that monetary policy is generally a more effective and more desirable policy tool to manage aggregate demand than fiscal policy. Monetarists also acknowledge limits to monetary policy that make fine tuning the economy ill advised and instead tend to prefer adherence to policy rules that promote stable rates of inflation.

The New Classical school, along with the New Keynesians, is built largely on the goal of integrating microeconomic foundations into macroeconomics in order to resolve the glaring theoretical contradictions between the two subjects. The New Classical school emphasizes the importance of microeconomics and models based on that behavior. New Classical economists assume that all agents try to maximize their utility and have rational expectations , which they incorporate into macroeconomic models. New Classical economists believe that unemployment is largely voluntary and that discretionary fiscal policy is destabilizing, while inflation can be controlled with monetary policy. The New Keynesian school also attempts to add microeconomic foundations to traditional Keynesian economic theories.

While New Keynesians do accept that households and firms operate on the basis of rational expectations, they still maintain that there are a variety of market failures, including sticky prices and wages. Because of this "stickiness", the government can improve macroeconomic conditions through fiscal and monetary policy. The Austrian Schoo l is an older school of economics that is seeing some resurgence in popularity.

Austrian economic theories mostly apply to microeconomic phenomena, but because they, like the so-called classical economists never strictly separated micro- and macroeconomics, Austrian theories also have important implications for what are otherwise considered macroeconomic subjects. In particular the Austrian business cycle theory explains broadly synchronized macroeconomic swings in economic activity across markets as a result of monetary policy and the role that money and banking play in linking microeconomic markets to each other and across time.

Macroeconomics differs from microeconomics , which focuses on smaller factors that affect choices made by individuals and companies. Factors studied in both microeconomics and macroeconomics typically have an influence on one another. For example, the unemployment level in the economy as a whole has an effect on the supply of workers from which a company can hire. A key distinction between micro- and macroeconomics is that macroeconomic aggregates can sometimes behave in ways that are very different or even the opposite of the way that analogous microeconomic variables do.

For example, Keynes referenced the so-called Paradox of Thrift, which argues that while for an individual, saving money may be the key building wealth, when everyone tries to increase their savings at once it can contribute to a slowdown in the economy and less wealth in the aggregate. There are those that can be renewed, such as forests and agricultural products, and those that cannot, such as coal, minerals, oil, and the like. Both are strongly related to production. So, natural and physical forces can be:. The market develops according to the political and legal environment in various areas. This means that every business needs to be up to date with such forces worldwide in order to be able to make the right decisions.

Finally, it is crucial to understand that the product that you bring to the market can have a strong impact on society. For example, your production needs to eliminate every practice that is hazardous to society, and show that it is socially responsible. There is a wide variety of social and cultural factors, some of them being:. In terms of strengths, you should ask yourself what you are good at, what value you bring, what kind of difference you make, and so on. On the other hand, when it comes to weaknesses, you need to evaluate your dependency on outside vendors, aspects that need to be improved, and so on.

Opportunities are related to favorable circumstances that the company needs to make use of in order to improve its position on the market. Threats are factors that cannot be controlled but need to be acknowledged. This includes political, economic, and customer trends, as well as debts and costs. Both micro and macro factors have a strong influence on how successful your business is. Every decision that you make needs to take these two environments into consideration. Your marketing strategies have to be based on them as well, if you truly want them to be lucrative, and retain a reputable position on the market. Simple, powerful tools to grow your business.

Easy to use, quick to master and all at an affordable price. Buy Now - Free Install Anytime. Learn more. In many cases, the company will need to pass the additional cost on to the consumer in the form of increased product prices. This could reduce the company's revenue if sales decrease because of the company's higher prices. Bureau of Economic Analysis. Economy at a Glance. Federal Reserve Board. Bureau of Labor Statistics. Federal Reserve Bank of St. US Markets. Federal Reserve. Your Money. Personal Finance. Your Practice. Popular Courses. Investing Fundamental Analysis. What Is a Macro Environment? Key Takeaways The macro-environment refers to the broader condition of an economy as opposed to specific markets.

The macro-environment can be affected by GDP, fiscal policy, monetary policy, inflation, employment rates, and consumer spending. The state of the macro environment affects business decisions on things such as spending, borrowing, and investing. What Is Macro Environment Analysis? What Is an Example of a Macro Environment? Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

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