Why does macroeconomics matter?
1 Answer
Macroeconomics matters because it studies the factors that determine overall production and income in a society, as well as the related outcomes of price levels (inflation) and unemployment.
Explanation:
Macroeconomics is not a very precise science. The models are still highly uncertain, but it might help to think of the models the way one would think about models to study hurricanes or earthquakes. We are not very precise in predicting those phenomena, either, but their impact is so important that we do the best we can.
While we may not be able to predict the next recession or say with precision what we could do to increase economic growth, we do have some important insights from macroeconomics.
We generally understand that hyperinflation results from creating too much money in an economy. We understand the general role that education and other forms of investment play in helping economies achieve higher levels of production. We understand that investment by government (which requires borrowing) can crowd out investment by the private sector. We understand how capital flows between nations link the markets for loanable funds with the markets for currency exchange.
These insights concern outcomes that have a huge impact on people's well-being. So, even if we can't be certain about much in macroeconomics, the stakes are so high that we need to be as smart as we can be.
