Macroeconomics and Economic Equilibrium

Abstract

Macroeconomics is the study of aggregate economic activities such as employment, price level and the generation of national income involving a large system of aggregate socio-economic variables that relate to these above principal macroeconomic activities. Along with these, policy variables are used to study the nature and possibility of attaining a general equilibrium as a series of interactions among the aggregate variables under the impact of policy variables. Thus macroeconomics as an aggregative economic study in this sense of an interplay between and among socio-economic variables and policy variables, is neither the study of markets, institutions, government nor economic behaviour. There is no decision-maker in a macroeconomic system. Hence, the questions of rational decision making, information and equilibrium, as they arise in microeconomics, are not within the purview of macroeconomics. Even the concept of economic equilibrium is quite different from the concept of market equilibrium in the sense of rational choices, information-driven price mechanism that clear markets through exchange. Rather, equilibrium in the macroeconomic sense means a simultaneous equilibrium arrived at among the aggregate activities as a result of a combination of interactions among socio-economic variables and policy variables.