What Is the Role of Inflation in Macroeconomics?

Macroeconomics (English name: Macroeconomics ) is an economic field that uses the overall statistical concepts of national income, the overall investment and consumption of the economy to analyze the laws of economic operation. Macroeconomics is relative to microeconomics. Research on the economic aggregate, aggregate demand and aggregate supply, total national income and its composition, currency and finance, population and employment, factors and endowments, economic cycles and economic growth, economic expectations and economic policies, and international trade in western economics Disciplines related to international economics and other macroeconomic phenomena.

macroeconomics

(School of Economics)

Macroeconomics (English name: Macroeconomics ) is used

Macroeconomics includes

A central issue in macroeconomic research is:

Macroeconomics points out that the government should, and can, use fiscal and monetary policies to regulate aggregate demand, calm down cyclical economic fluctuations, overcome economic recession, and avoid inflation in order to achieve full employment equilibrium or no Full employment in inflation.

The use of fiscal and monetary policies is mutually supportive and supportive; however, under different periods or conditions such as economic depression and inflation, the two will take different countermeasures of expansion or contraction.

During the depression, expansionary fiscal and monetary policies were adopted. In fiscal policy, the main measures are tax cuts and expansion of government spending. Tax reduction can increase the after-tax income of companies and individuals, thereby stimulating enterprises to expand investment and personal consumption; while the expansion of investment demand and consumer demand will lead to growth in aggregate demand to overcome economic depression.

Increasing government spending is mainly to expand government purchases or orders, increase public works funding and expand transfer payments. The purpose is to stimulate investment by expanding public and private consumption. This expansionary fiscal policy is bound to lead to fiscal deficits. According to Keynes's theory of effective demand, the normal state of the economy is an equilibrium less than full employment. As a result, the expanding deficit budget has become a standing policy tool for post-war Western governments.

In terms of monetary policy, the main measures are to expand the money supply and reduce interest rates. These measures include buying government bonds on the open market and injecting more reserves into commercial banks. When the reserves of commercial banks increase, they can expand loans to enterprises and individuals, thereby expanding the money supply, reducing the discount rate, stimulating investment, and increasing aggregate demand.

Economic models can be used to analyze decisions in many areas. We classify some areas into microeconomics, and others into macroeconomics. Microeconomics studies how households and businesses make choices, how they interact in markets, and how governments try to influence their choices. Microeconomic issues include explaining how consumers respond to changes in product prices and how companies decide what prices to charge. Microeconomics also addresses policy issues such as analyzing the most effective ways to reduce smoking in minors, analyzing the costs and benefits of approving the sale of a new prescription drug, and analyzing the most effective ways to reduce air pollution.

Macroeconomics studies the economy as a whole, including issues such as inflation, unemployment, and economic growth. Macroeconomic issues include explaining why the economy goes through periods of recession and rising unemployment, and why some economies have grown much faster than others in the long run. Macroeconomics also deals with policy issues, such as whether government intervention can reduce the severity of the recession.

The distinction between microeconomics and macroeconomics is not rigid and fixed. Many economic situations involve both microeconomic and macroeconomic dimensions. For example, the overall level of business investment in new machinery and equipment helps determine the rate of economic growtha macroeconomic issue. But to understand how much new machinery and equipment a company decides to buy, we need to analyze the incentives faced by an individual businessa microeconomic issue. ^[2]

A basic gap between macroeconomics and microeconomics is that they study different objects and economic variables. Microeconomics studies individual markets, while macroeconomics studies aggregate markets and reflects output and prices. From the perspective of microeconomics, describing the TV market can simply use the number of TV stations as the output, and the TV price is also single. There is no problem that requires further research. The total output of the total market research in macroeconomics includes the output of all markets and services including television, so how to measure the total output itself becomes a problem. ^[3]

The difference between the two is mainly reflected in:

(1) The research objects are different.

The research objects of microeconomics are individual economic units, such as households and manufacturers. As the American economist J Henderson said, the optimization of individual units by households and manufacturers laid the foundation for microeconomics. The research object of macroeconomics is the entire economy. It studies the operation mode and laws of the entire economy, and analyzes economic problems from the total amount. As Samuelson said, macroeconomics analyzes overall economic behavior based on output, income, price levels, and unemployment. American economist Eshapiro emphasized the role of macroeconomics in examining the national economy as a whole.

(2) The problems to be solved are different.

What microeconomics needs to solve is the problem of resource allocation, that is, what is produced, how and for whom, in order to maximize the individual benefits. Macroeconomics regards resource allocation as an established premise and studies the use of resources within society to maximize social welfare.

(3) Different research methods.

The research method of microeconomics is quantitative analysis, that is, how to determine the individual values of economic variables. The research method of macroeconomics is the total analysis method, which analyzes the decisions, changes and their relationships of economic variables that can reflect the overall economic operation. These totals include two types, one is the sum of the quantities and the other is the average. Therefore, macroeconomics is also called total economics.

(4) Basic assumptions are different.

The basic assumptions of microeconomics are market clearing, complete rationality, and sufficient information. It is believed that the "invisible hand" can freely adjust and optimize the allocation of resources. Macroeconomics assumes that the market mechanism is imperfect, and the government has the ability to regulate the economy and correct the shortcomings of the market mechanism through "visible hands".

(5) Of course, the central theory and basic content are also different.

The central theory of microeconomics is price theory, which also includes consumer behavior theory, production theory, distribution theory, general equilibrium theory, market theory, property rights theory, welfare economics, and management theory. The central theory of macroeconomics is the theory of national income determination, which also includes unemployment and inflation theory, business cycle and economic growth theory, and open economy theory. ^[2]