Macroeconomics

Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision making of an economy as a whole. This includes regional, national, and global economies. The macroeconomic perspective looks at the economy as a whole, focusing on objectives such as growth in living standards, unemployment, and inflation. Macroeconomics has two types of policies to pursue these goals: monetary policy and fiscal policy.

In other words, macroeconomics is concerned with the analysis of the macro-subjects that make up an economic system, and the relationships between them, unlike microeconomics, which analyzes the behavior of individual individuals, whether households or firms.

In the definition of macro-subject there is always a certain margin of arbitrariness: for example, a national economic system can be defined on the basis of a geographical reference – the boundaries of the nation – or on the basis of other criteria – the legal residence in the country of the economic subjects belonging to the system. As a rule, macro-subjects are identified on the basis of functional criteria, and their identification varies according to the type of economic process to be studied.

The first relevant distinction is between the national economic system and other economic systems. Macroeconomics studies in particular the economic relations between a national system and the rest of the world, whether they are of a real nature – such as the exchange of goods and services – or of a monetary nature – such as the purchase and sale of securities and currencies. The national economic system can be divided into two sectors: the private sector and the public sector, in which the Central Bank is usually included. The public sector is made up of central (Ministries) and local (Regions, Provinces, Municipalities, Local Health Units, etc.) bodies, as well as a composite set of bodies and companies that are predominantly publicly owned.

Also in this case, the distinction between “public” and “private” is not clear-cut; if one intends to study the productive capacity of the country’s industry, for example, it will be appropriate to include in the definition of “industry” companies with public participation, and treat them to all effects as private companies. When, on the other hand, it is intended to analyze the formation of the deficit of the public sector, it will be necessary to consider, within this sector, the publicly-owned companies that contribute to the deficit with their profits or losses. Proceeding with functional analysis, the private sector can in turn be broken down into businesses and households, where by “business” is meant a unit whose function is the production of goods and services, while by “household” the relevant function is that of consumption and savings. Even in this case, the distinction is arbitrary: think of the numerous examples of family-run businesses, in which part of the goods consumed are self-produced. In these cases, the same subject can belong to both sectors, and will be analyzed as a business in relation to its production decisions, and as a family in relation to its consumption and savings decisions.

Another distinction is that between financial enterprises – banks, insurance companies – whose central character is the granting of credit and the collection of savings, and non-financial, or productive, enterprises, which operate instead for the production and sale of goods and services. In much of what follows, the two types of firms will be considered together: if, for example, one is interested in the potential of the economic system to create employment, and reduce the unemployment rate, it may be of little relevance whether jobs are created in the financial or goods subsystem. On the other hand, when analyzing credit formation, it will be essential to separate financial firms from other firms.

The distinction between macro-subjects can be extended further, depending on the economic phenomena that are to be studied. We can, for example, distinguish non-financial enterprises according to the commodity sector of production – agriculture, industry, services; to study the distribution of personal income it is appropriate to further distinguish the subject “households” according to the type of income received by the head of the household, and so on.