EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login

Macroeconomics Problems

By Madhuri ThakurMadhuri Thakur

Home » Finance » Blog » Economics » Macroeconomics Problems

macroeconomics problems.,,..

You may have heard these facts before or this may be totally new information for you. Let me tell you that, the above three events are quite interesting. These facts may have contributed to the macro economy of that respective country in one way or the other. But life does not always bring all the good news to the market. There are some macroeconomics problems that can totally crash the Market. So in this article of  Macroeconomics Problems, we are going to understand these issues in detail and how they affect the economy. So lets first start by understanding the meaning of Macroeconomics .

Meaning of Macroeconomics

You must have heard of the term Microeconomics hundreds of time. So let’s now try to understand it in simple terms. Macroeconomics is focused on the movement and trends in the economy as a whole. It is the field of economics that studies the behavior of the entire economy. Thus we can say that it is that part of economic theory which studies the economy in its totality or as a whole. Let us now understand how it is different from Microeconomics. Microeconomics deals with individual economic units like a household, a firm or an industry. On the contrary Macroeconomics deals with the whole economic system like national income, total savings and investment, total employment, total demand, total supply, general price level etc. In this article we are going to study how these aggregates of economy are determined and what causes fluctuations in them. What we are going to understand the reason for the fluctuations and how to ensure the maximum level of employment and income in a country.

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Importance of Macroeconomics

  1. It helps in understand the functioning of a complex modern economic system. Macroeconomics gives us a clue on how the economy functions on a whole and how the level of national income and employment is determined on the basis of aggregate demand and aggregate supply.
  2. In a certain way macroeconomics does helps in achieving the goal of economic growth, higher level of GDP and higher level of employment.
  3. It also analyses the forces which determine economic growth of a country. Understanding the macroeconomic problems gives a cue on how to reach the highest state of economic growth and sustain it.
  4. Bringing stability in price level and analysis of the fluctuations in business activities is another set of macroeconomic problems that are taken care by better understanding of macroeconomics.
  5. Macroeconomics helps in suggesting policy measures to control inflation and deflation.
  6. It explains factors affecting balance of payment. It also identifies causes of deficit in balance of payment and suggests measures for the same.
  7. It helps to solve economic problems like poverty, unemployment, inflation, deflation etc. The solution for such macroeconomic problem is possible at macro level only.
  8. Better understanding of the macroeconomics of the country helps to formulate correct economic policies and also coordinate with international economic policies.

Macroeconomics Problems: What are they?

Now that we have understood the meaning and importance of macroeconomics, let’s try to grasp some ideas about some common macroeconomics problems. In the earlier paragraphs of this article we have heard some terms that are related to macroeconomics. Some of them were inflation, unemployment, balance of payment etc. So now let’s get to know them better. Have you ever tried to think of when these macroeconomics problems arise? To get your doubts clear let me share the answer with you. Macroeconomics problems arise when the economy does not adequately achieve the goals of full employment, stability, and economic growth. As a result of which there is a cascading effect which follows. Unemployment results when full employment is not achieved. Inflation creeps in when the economy falls short of the goal of stability. The phase of stagnant growth arises when the economy is not adequately attaining the goal of economic growth. All these problems are either caused by too little or too much demand for gross production. For instance, unemployment results from too little demand and inflation emerges with too much demand.

Unemployment

macroeconomics problems,.Think that there are 4 boxes of a full sized pizza, and there are 10 hungry moths that are ready to grab a bite. But only 4 of them get to have all the 4 boxes of pizza. So rests of the six people are not utilized here in this eating completion. Though it’s a funny scenario, it can exactly be related to why unemployment creeps in. In the same way; unemployment arises when factors of production that are willing and able to produce goods and services are not actively engaged in production. Unemployment means the economy is not attaining the macroeconomic goal of full employment. Unemployment is a problem because:

  • Less output is produced and thus arise the problem of scarcity in the economy.
  • Due to which the owners of unemployed resources receive less income. This gradually reduces the standard of living.

Thus unemployment rate ultimately tells us how many people from the available pool of labor force are unable to find work. It is generally observed that when the economy witness growth from period to period, which is indicated in the GDP growth rate, unemployment levels tend to be low. This is because with rising (GDP levels, the output is higher, and hence more laborers are needed to keep up with the greater levels of production. Generally, better the economy, lower is the unemployment rate and vice-versa.

Inflation

macroeconomics-problems3

The consistent and persistent rise in the average price level in the economy leads to inflation. In simple words, during the Inflation there is general rise in the price of goods and services over time. In such case, prices generally rise from month to month and year to year and thus with this burden of inflation the economy does not attain its stability goal. Inflation leads to an average increase in prices. Here, some prices rise more than the average, some rising less, and some even declining. Inflation is a problem because:

  • Since there is rise in the price of goods and services, the purchasing power of money declines. This in turn reduces financial wealth and lowers living standards.
  • Greater uncertainty surrounds long-run planning.
  • Income and wealth tend to be haphazardly distributed among various sectors of the economy and amongst the resource owners.

So if you are an investor, be advised to watch for rises in the inflation rate.

Popular Course in this category
Sale
All in One Financial Analyst Bundle- 250+ Courses, 40+ Projects250+ Online Courses | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (3,296 ratings)
Course Price

View Course

Related Courses
Investment Banking Course (123 Courses, 25+ Projects)Mergers & Acquisition Course (with M&A Projects)Financial Modeling Course (7 Courses, 14 Projects)

macroeconomics-problems4

Unemployment and inflation tend arise at different phases of the business cycle. The probability of these problems will vary accordingly. At some times, unemployment is less of a problem and inflation is more. At other times, unemployment is more of a problem and inflation is less. Now we will understand how these two problems are connected to the two primary phases of the business cycle. Contraction Phase: During the contraction phase of the business cycle there is a general decline in economic activity. The overall aggregate demand is less which means that there is less output that is produced, and thus fewer resources are employed for the same. For this reason, unemployment tends to be a key problem here. But at the same time since markets tend to have more surpluses than shortages, inflation tends to be less of a problem during this phase. Expansion Phase: During the expansion phase of the business cycle there is a general rise in the economic activity. Thus the overall aggregate demand increases leading to more production and the resources been employed at a higher level. Demand is more than the supply. Hence markets are more likely to have shortages than surpluses. Thus inflation tends to be the primary problem during this phase. However, with robust production, more people are needed to cope up with the Job demand and thus unemployment tends to be less of a problem.
<h2Interest Rates

macroeconomics problems. Interest rates are the charges which are levied by the banks for lending a loan. As businesses borrow money from the banks from time to time, increase in Interest rates will directly influence the business. With the increase in interest rates will lead to increase in interest expense. In such a case businesses will have to incur higher costs to repay the loan. Along with the businesses, interest rate changes also affect customers who in turn will affect the business. Individuals in such cases have to pay higher amount to borrow the money, ultimately declining the demand for large products.
<h2Stagnant Growth

macroeconomics-problems5

Stagnant growth occurs when Supply of products is not increasing or it is decreasing below the benchmark. An increase in the total production of goods and services is generally needed for growth of the economy. This is required to keep pace with an increase in the population and expectations of rising living standards. Stagnant growth exists if total production does not keep pace with these expectations. Hence the macroeconomic goal of economic growth is not attained. The probable reasons for stagnant growth can be associated with the quantity and quality of the resources used for production. So let’s understand the reasons in detail. The quantities of the four factors of production can restrict the growth of production. These factors are labor, capital, land, and entrepreneurship. If a lazy person decides to quit his job and spend his time doing nothing but sleeping on his parent’s living room sofa, then the total quantity of labor declines. Thus the quantity of labor is based on both the overall population and the portion of the population willing and able to work. If for example, Government regulations and High taxes discourage some industries to build new factories in the manufacturing sector, it will totally decline the quantity of capital. So this is all about the Macroeconomics Problems. If you have any further input on this article, you may notify me through the comments below this article. Learn the juice of this article in a minute through Macroeconomics problems Infograph

Recommended Articles

Here are some articles that will help you to get more detail about the Macroeconomics Problems so just go through the link.

  1. Macroeconomics vs Microeconomics 
  2. Macroeconomics Problems
  3. Benefit Of IPO

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

15 Shares
Share
Tweet
Share
Primary Sidebar
Finance Blog
  • Economics
    • What is Command Economy?
    • Tax Reform
    • Green Field Investment
    • Elastic Demand Formula
    • Tax Sale
    • Gross Income vs Net Income
    • NASDAQ vs NYSE
    • Trade Deficit
    • Tax Shelter
    • Form 10 K
    • International Investment
    • Leading vs Lagging Indicators
    • Nominal GDP vs Real GDP
    • Monetary Policy vs Fiscal Policy
    • Foreign Direct Investment
    • CRR vs SLR
    • Elasticity of Demand Example
    • Economics Example
    • Negative Correlation Example
    • Economies of Scale Example
    • Macroeconomics vs Microeconomics
    • Macroeconomics Problems
    • Perfect Competition vs Monopolistic Competition
    • CPI vs RPI
    • Elastic Demand vs Inelastic Demand
    • Primary Market vs Secondary Market
    • Monopoly vs Monopolistic Competition
    • Supply vs Demand
    • Duty vs Tariff
    • Deflation vs Disinflation
    • Inflation vs Interest Rates
    • Repo Rate vs Reverse Repo Rate
    • Price Elasticity of Demand Formula
    • Oligopoly vs Monopoly
    • Monopoly vs Perfect Competition
    • Cross Price Elasticity of Demand Formula
    • Demand Pull Inflation
    • Variance Analysis
    • Money vs Currency
    • Mean vs Median
    • Nominal vs Real Interest Rates
    • Tax Evasion vs Tax Avoidance
    • Career in Economics
    • Bank Rate vs Repo Rate
  • Accounting fundamentals (658+)
  • Asset Management Tutorial (198+)
  • Banking (44+)
  • Corporate Finance Basics (248+)
  • Credit Research Fundamentals (6+)
  • Finance Formula (382+)
  • Financial Modeling in Excel (13+)
  • Investment Banking Basics (120+)
  • Investment Banking Careers (26+)
  • Trading for dummies (67+)
  • valuation basics (27+)
Finance Blog Courses
  • Investment Banking Course
  • Mergers & Acquisition Course
  • Financial Modeling Course
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more

Special Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) Learn More