GLOBAL ECONOMY

Global Economy



Global Economy

Macroeconomics IS essentially the study of the behavior and performance of the economy as a whole. More importantly, it studies the relationship and interaction among the factors or forces that determine the level and growth of output and employment, general price levels, and the balance-of-payment position of an economy.

Macroeconomic theories use models to explain the behavior of variables and specify the nature of relationships between them. The most important aspect of macroeconomic theories is that it provides a framework and analytical model to analyze phenomena. The theories of income determination, consumption, investment, employment, price-level determination, product and money market equilibrium, exchange rate, and balance of payments constitute the main body of the macroeconomic theories.

Regarding policy orientation, macroeconomics analyzes the workings and effects of government policies, especially the monetary and fiscal policies, on the economy. The working knowledge and efficacy of these policies are extremely useful in devising appropriate policy measures for controlling and regulating the economy to achieve the desired goals. The policy aspect of macroeconomics is so important that in the opinion of some economists, macroeconomics is first and foremost a policy science. Macroeconomics as a policy science provides a framework and instruments for restructuring the economy and guiding it on the path of growth and stability.

The macroeconomics of poverty focuses on the relationships among the structure of the macroeconomy and poverty, and on the macroeconomic policies that target poverty. It studies the effects of growth; fiscal, monetary, and exchange-rate policies; financial and trade liberalization; privatization; and deregulation on poverty. These stabilization and liberalization policies shape the structure of the economy and affect income inequality and poverty. The United Nations Development Program (UNDP) has recognized the importance of pro-poor macroeconomic policies in poverty eradication, and has launched its Regional Program on Macroeconomics of Poverty Reduction.

On the practical side, both developed and developing economies are constantly confronted with some kind of macroeconomic problem, for instance, recession and depression, unemployment, persistent inflation or stagflation, balance-of-payment deficits, outflow of capital, mounting debt burden, or a country falling into the debt trap. An appropriate and sustainable solution to these problems has to be found, if an economic collapse like the Great Depression of the 1930s is to be averted. Even if an economic catastrophe of this magnitude does not take place, macroeconomic problems like recession, unemployment, inflation, and increasing external-debt burdens need to be redressed because they have sociopolitical implications for the country in general and the government in particular.

Most contemporary development theories seek to define the social, economic, or political conditions under which humans, both individually and collectively, are able to realize their potential, build self-confidence, and live with dignity and fulfillment. Such a simple definition, however, obscures the range and conflicting nature of practices that theorists have identified as significant in this pursuit.

The earliest theories of development emerged during the 1950s after the end of World War II. Before this time, there was limited concern for the levels of inequalities in existence among the world's human populations, most ...