Economic theory became a science after the classics substantiated that the main source of a nation’s wealth is not the amount of natural resources available to it, but an effective form of organization of the social economy. Since then, the subject of economic research has been the relationship between people regarding the production, distribution, exchange and use of material goods and services in conditions of limited resources. More specifically, the content of economic theory and its simplified structure can be presented in Table. 1.1.
Content and structure of economic theory
Issues of economic theory
Branches of economic science
Why, what and in what quantity are asked for benefits in the market?
What determines the range of goods produced?
How is the mode of production determined?
How are market prices formed?
Pricing and pricing theory
How is income distributed?
Factor distribution theory
What is money and what is its role?
What determines the price level and its dynamics?
What determines the level of employment?
What determines the economic situation?
How is economic growth carried out?
What impact does the state have on the economy?
Theory of Economic Policy
What impact does abroad have on the national economy?
Theory of Foreign Economic Relations
In the table, economic theory is divided into 11 global questions, to which in modern science there are detailed and not always unambiguous answers in the form of specialized areas of economic knowledge. The latter, in turn, are combined into two parts of economic theory: microeconomics and macroeconomics. There are two circumstances at the heart of this division.
First, microeconomics and macroeconomics differ in the methodology for studying economic relations. Microeconomic analysis is devoted to the study of the behavior of individual economic entities (households, firms), the identification of conditions that ensure the activity and implementation of economic plans, and the description of the mechanism for coordinating and agreeing on a set of individual goals of the subjects of the national economy. In today’s economy, this harmonization is largely done through market pricing of goods and factors of production. Therefore, the mechanism of market pricing is at the center of microeconomic analysis.
Macroeconomic analysis is aimed at identifying the results of the functioning of the national economy as a whole. In macroeconomics, the factors that determine national income, the unemployment rate, the rate of inflation, the state budget and the balance of payments of the country, and the pace of economic growth are studied.
Secondly, microeconomics studies the exchange economy, in which “commodity money” is used, that is, the functions of money are performed by one of the goods produced by firms (for example, gold). This leads to the fact that in microeconomics only the subjects of the real sector of the national economy are considered. Macroeconomic analysis proceeds from the existence of “credit money” in the country, the amount of which is regulated by the state (Central or National Bank). Therefore, in macroeconomics, along with the real monetary sector, the interaction of both sectors are studied.
Microeconomics combines the theory of consumer choice and the theory of the firm. The subject of microeconomics is the mechanism of economic decision-making at the level of households and firms in given economic conditions, as well as the mechanism for the formation of these “given” conditions as a result of their joint actions. Microeconomics accepts as given such variables, the dynamics of which are studied by macroeconomics. In micro-analysis, consumer income is considered mainly as a given value and the emphasis is on the distribution of household expenditures among different goods and services. Conversely, in macro analysis, total expenditure, total income, disposable income, consumption, etc. are themselves the subject of research. Macroeconomic factors (such as the level of the market interest rate, inflation, unemployment, etc.) influence the decisions of households and firms about savings, investment, consumer spending, etc., which in turn determine the magnitude and structure of aggregate demand. Therefore, micro- and macroeconomic processes are closely interrelated.
Despite the relative independence of microeconomics and macroeconomics, their conclusions about the essence of economic phenomena and patterns often complement each other. In recent years, economic theory has paid much attention to the microeconomic consolidation of macroeconomic concepts.
To understand the subject of macroeconomics research, it is important to distinguish between macroeconomic analysis ex post, or national (national) accounting, and ex ante analysis – macroeconomics in the proper sense of the word. The purpose of ex ante analysis is to determine the patterns of formation of macroeconomic parameters. National accounting measures determine the values of past macroeconomic parameters in order to obtain information on how the economy has functioned and what results have been achieved. This information is used to determine the degree of implementation of the planned goals, the development of economic policy, a comparative analysis of the economic potentials of different countries. On the basis of ex post analysis data, macroeconomic concepts are adjusted and new ones are developed. Ex ante analysis is a predictive modeling of economic phenomena and processes based on certain theoretical concepts. Thus, on the basis of an ex post analysis, it can be stated that national income is distributed between consumption and accumulation, for example, in a ratio of 1: 1 or 3: 1. Whether this proportion corresponds to the conditions of balanced growth in the absence of market unemployment, it turns out in the course of the analysis of ex ante.
Thus, macroeconomics is a branch of economic science that studies the behavior of the economy as a whole from the point of view of ensuring conditions for sustainable economic growth, full employment of resources, minimization of inflation and balance of payments equilibrium.
Economic growth is the result of relatively stable factors such as population growth and technological progress. The dynamics of these factors in the long term determines the dynamics of the potential volume of production. In the short term, the economy deviates from this main trajectory of uniform translational movement. Ensuring sustainable economic growth therefore involves managing these cyclical fluctuations.
The economic cycle is managed to ensure full resource employment and non-inflationary economic growth through macroeconomic policy instruments: fiscal (or fiscal) and monetary (or monetary). Fiscal policy (including foreign trade policy) is carried out mainly by the government, and monetary policy is carried out mainly by the Central (National) Bank. Coordination of short-term and long-term goals, selection of instruments and development of alternative strategies for fiscal and monetary policy are the direct object of research in macroeconomic theory.
Focusing on the most significant economic factors that determine the fiscal and monetary policy of the state (for example, such as the dynamics of investments, the state budget and balance of payments, wages, prices, exchange rate, etc.), macroeconomics leaves “behind the scenes” the behavior of individual economic agents – households and firms. Macroeconomic analysis involves abstracting from the differences between individual markets and identifying the key points of the functioning of an integral economic system in the interaction of the markets for goods, labor and money as such, as well as national economies as a whole. We are talking about mechanisms for establishing and maintaining, through fiscal and monetary policy measures, short-term and long-term general macroeconomic equilibrium (internal and external).
Currently, macroeconomic categories and indicators are of interest to the widest strata of the population. People’s current incomes are directly dependent on the level of national income and employment. The value of family property is directly related to the rate of inflation. The state of a country’s balance of payments largely determines the degree of freedom of movement of its inhabitants across state borders.
From economic theory, as well as from other sciences, they are expected not only to explain the essence of the phenomena under study and predict their development, but also to identify the possibilities of people to influence the course of events. For example, the outcomes of elections to representative and executive bodies depend crucially on the current values of macroeconomic indicators. Therefore, economic theory in general, and macroeconomics in particular, has an active influence on the economic policy of the government.
The specificity of the subject of macroeconomics naturally determines the methodological and methodological features of macroeconomic analysis.