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Why is macroeconomics important?

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Quick Answer

Macroeconomics is important because it allows the public to understand the economy as a whole, facilitating decisions relating to firms, fiscal policy and global economic policy. Macroeconomics gives academics, policy makers and other interested individuals a view into the relationship between factors such as unemployment, income and inflation. By studying trends in the macroeconomy, countries are able to prevent disasters such as recessions and depressions.

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Why is macroeconomics important?
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Full Answer

Whereas microeconomics is concerned with individual markets, macroeconomics looks at the economy at a national, regional and global level. Important factors of study within macroeconomics include business cycles, output, inflation and unemployment.

Business cycles indicate the direction the economy is taking. Downward movement in GDP is indicative of recession. Output refers to the value of everything that a country produces in a given time period. The study of output gives insight into the effects of education and technology. Inflation is the general price increase in a country.

Understanding inflation and deflation is vital to policy makers because deflation can lower economic output, while inflation decreases purchasing power. Analysis of unemployment provides an understanding of the condition of sectors within the economy, informing policy that stimulates job growth.

Macroeconomics also observes the relationship between the economy and monetary and fiscal policy. It makes it possible to know whether acts of government and central banks are effective or not.

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