Nature of Macro Economics:
The nature of a subject is determined on the basis of whether a science has a purely positive (theoretical) or normative (policy) orientation or both. A positive science has only theoretical orientation whereas a science having normative orientation aims at setting norms for finding solution to practical problems and provides policy guidelines Macroeconomics has both positive (theoretical) and policy orientations.
Importance of Macro Economics
Lies in providing a theoretical framework for finding solutions to three major macroeconomic problems confronting most countries of the world, viz.,
(i) problems of economic growth ,
(ii) unemployment and
(iii) inflation.
As regards the problems of economic growth, both developed and underdeveloped countries have been striving, especially after the Second World War, to achieve and maintain a high growth rate. While industrially advanced nations have succeeded in achieving a high growth rate during the post-war II period, most of them, excepting japan, are still striving to achieve a reasonably high growth of the economy and to sustain it over a long period of time.
Pre-Keynesian Era: The pre- Keynesian era refers to the period of economic thoughts of classical and pre-classical economists. Their macroeconomic thought were in the forms of certain ‘postulates’ which can be summarized .If market forces of demand and supply are allowed to have free play, i.e., the laissez-faire system, then
(i)there will always be full employment in the long –run,
(ii) there will be neither overproduction nor under-production and
(iii) the economy will always be in equilibrium in the long-run.
The Keynesian Revolution: The collapse of the classical economics necessitated a fresh look at the working of the economic system and devising corrective measures and safeguards against the failure of the market economy, it was in this background that Keynes published his General Theory which laid the foundation of macroeconomics.
Post-Keynesian Development: Until the 1970s, the Keynesian thoughts and policies had global appeal and application. However, Keynesian economics started showing signs of failures during the 1970s. This raised the doubt about the relevance and applicability of Keynesian economics. Consequently, several other schools of macroeconomic thoughts emerged, viz., Monetarism, supply-side macroeconomics, New Classical macroeconomics and New Keynesianism.
New Classical Macro Economics: During the 1980s, the Keynesian view was attacked by another group of economists, called radicalists led by Robert E. Lucus, the Nobel Laureate of 1995, their views known as new classical macroeconomics.
Supply-Side Economics: Another school of macroeconomics that emerged meanwhile is called “Supply-Side Economics”. While Keynesians and monetarists have both built their arguments for ‘what determines the aggregate demand ’on the basis of the factors operating on the demand side of the market,” supply-side economists’,” led by Arthur Laffer, emphasized the role of the factors operating on the supply-side of the market.
