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Macroeconomics

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Macroeconomics is the study of the behavior of the overall economy. Thus macroeconomics focuses on broad-based indicators of national economic performance, like GDP output, balance of trade, and employment levels. Macroeconomics can be contrasted against microeconomics, which is the study of the economic behavior of the individual firm and consumer. Traditionally, in the United States the study of macroeconomics has had two main schools. Put simply, the Keynesian school of macroeconomics focuses on total demand and looks to both fiscal policy (government spending levels) and monetary policy (money supply growth) for solutions. The Monetarism school of macroeconomics rejects fiscal policy as a means of managing the economy and looks to monetary policy exclusively for answers. These major schools of macroeconomics have now developed offshoot and successor movements, such as New Keynesian Economics and New Classical Macroeconomics. Macroeconomics has major consequences for investors, as company earnings models are heavily dependent on growth in the overall economy, and bond (and, to a lesser extent, stock) prices are strongly determined by the level of interest rates.



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