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Top 9 Importance of Macroeconomics – Discussed!


Brief outlines of the nine theoretical and practical importance of Macroeconomics are (1) Functioning of an Economy, (2) Formulation of Economic Policies, (3) Understanding Macroeconomics, (4) Understanding and Controlling Economic Fluctuations, (5) Inflation and Deflation, (6) Study of National Income, (7) Study of Economic Development, (8) Performance of an Economy, and (9) Nature of Material Welfare.

1. Functioning of an Economy:

Macroeconomic analysis is of paramount importance in getting us an idea of the functioning of an economic system.

It is very essential for a proper and accurate knowledge of the behaviour pattern of the aggregative variables as the description of a large and complex economic system is impossible in terms of numerous individual items.

2. Formulation of Economic Policies:


Macroeconomics is of great help in the formulation of economic policies. The days of ‘laissez faire’ are over and government intervention in economic matters is an accomplished fact. Governments deal not with individuals but with groups and masses of individuals, thereby establishing the importance of macroeconomic studies. For example, during depression, when the machines lie idle and men roam from pillar to post in search of employment, macroeconomics helps us to analyze the cause leading to depression and unemployment and to the adoption of suitable policies to cope with such a situation.

3. Understanding Macroeconomics:

The study of macroeconomics is essential for the proper understanding of microeconomics. No Microeconomic law could be framed without a prior study of the aggregates; for example, the theory of individual firm could not have been formulated with reference to the behaviour pattern of one single firm, howsoever representative it might have been; the theory was possible only after the behaviour pattern of several firms had been examined and analyzed, for example, the forest, though an aggregation of trees, does not exhibit the behaviour and characteristics of individual trees. Microeconomics has been, and to some extent, remains a jungle of special assumptions, special cases, unsatisfactory measurements and abstract theorising.

4. Understanding and Controlling Economic Fluctuations:

Economic fluctuations are a characteristic feature of the capitalist form of society. The theory of economic fluctuations can be understood and built up only with the help of macroeconomics, for here we have to take into consideration aggregate consumption, aggregate saving and investment in the economy. Thus, we are led to analyse the causes of fluctuations in income, output and employment, and make attempts to control them or at least to reduce their severity.

5. Inflation and Deflation:

Macroeconomic approach is of utmost importance to analyse and understand the effects of inflation and deflation. Different sections of society are affected differently as a result of changes in the value of money. Macroeconomic analysis enables us to take certain steps to counteract the adverse influences of inflation and deflation.

6. Study of National Income:


It is the study of macroeconomics which has brought forward the immense importance of the study of national income and social accounts. In micro-economy such a study was relegated to the background. It is the study of national income which enables us to know that three-fourth of the world is living in abject poverty. Without a study of national income, as a result of the development in macroeconomics, it was not possible to formulate correct economic policies.

7. Study of Economic Development:

As a result of advanced study in macroeconomics, it has become possible to give more attention to the problem of development of underdeveloped countries. Study of macroeconomics has revealed not only the glaring inequalities of wealth within an economy but has also shown the vast differences in the standards of living of the people in various countries necessitating the adoption of important steps to promote their economic welfare.

8. Performance of an Economy:

Macroeconomics helps us to understand and analyse the performance of an economy. It implies the result-oriented study of an economy—in terms of actual and factual achievements. Gross National Product (GNP) or National Income (NI) estimates are used to measure the performance of an economy over time by comparing the production of goods and services in one period with that of the other periods the composition of GNP gives information about the quantum of contribution of each sector of the economy to GNP.

9. Nature of Material Welfare:

Macroeconomics enables us to study the nature and size of the material welfare of the nations. The problem of measuring social welfare is not easy; even welfare economics does not help us. Those who are interested in the material and social welfare of all must study problems in their macroeconomic setting. This adds to the importance of macroeconomics because when the chief objective of the studies of economics is the welfare of entire society, economics becomes the study of macroeconomics.

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