Aggregation. First of all, it should be borne in mind that aggregated parameters are used in macroeconomics. The macroeconomic view of the national economy distinguishes in it three or four economic entities: the household sector, the business sector, the public sector and abroad. Each of these sectors is a collection of real economic entities.
In addition to specific types of economic activity, each of these macroeconomic entities interacts with others through lending and borrowing. In macroeconomic research, not only individuals and legal entities are aggregated, but also the nature of their behavior in economic life. The most important macroeconomic concepts include, for example, the function of household consumption, which describes changes in the demand of the household sector as a whole under the influence of various factors, or the function of demand for labor, common to the entire business sector.
Macroeconomic aggregation extends to markets as well. The entire set of markets for individual goods, which is the subject of microeconomic analysis, in macroeconomics is aggregated into a single market for goods, in which only one type of goods is bought and sold. This good can be used both as an object of consumption and as a means of production.
As a result of the folding of the whole set of real goods into one abstract good, the microeconomic concept of the price of a good as a proportion of the exchange of one commodity for another disappears. The subject of study is the absolute level of prices and its change.
Of the factor markets in short-term macroeconomic models, as a rule, only the labor market in which labor is bought and sold is represented. In models of economic growth, in addition to the labor market, there is also a capital market.
The securities market in short-term macroeconomic models represents the government bond market with one type of short-term bond.
As a macroeconomic analysis, another market that was absent in microeconomics is used – the money market. In this market, the supply and demand of the national currency interact. In the models of an open economy, along with the money market on which the national currency circulates, an international foreign exchange market appears, where the mutual exchange of various national currencies takes place.
Macroeconomic aggregation is not reduced to summing up the properties of the aggregated elements, since the economy, being a complex organic system, has the property of emergence (the appearance of qualitatively new phenomena). The consequences of a certain action of a microeconomic entity do not coincide with the consequences of the same action of a macroeconomic subject as an aggregate of microeconomic entities. So, if during a depression a firm refrains from real investments, then this contributes to the preservation of its capital. But if all firms do this, then the combined capital and capital of each firm individually will depreciate. Another example. Securities (bonds, shares) form part of the real property of an individual family. The sum of all domestic securities traded in the country in relation to society as a whole is fictitious capital, which is a financial obligation of some citizens to others.
The obvious costs of macroeconomic aggregation are partial loss of information and increased abstraction of economic research. At the same time, thanks to aggregation, it is easier to identify the essence of the most complex national economic processes. In order for aggregate indicators not to lose economic meaning and scientific value, it is necessary to comply with certain rules of aggregation, which are set forth in econometrics.
Macroeconomic relationships. As a result of macroeconomic aggregation, the functioning of the national economy is represented in the form of economic activity of four (or with a simplified scheme – three) entities (without a sector abroad), which interact with each other in four aggregate markets. Due to the specifics of state participation in the national economy, there are non-market economic ties between the state and the private sector in addition to market ones. Simplification of economic reality to a foreseeable number of the most significant interconnections is the basis of macroeconomic modeling, through which macroeconomic analysis is carried out.
The model of the object under study, as a rule, includes two groups of elements: parameters known at the time of building the model and unknown parameters that need to be determined from the analysis (solution) of the model. The former are also called exogenous (determined outside the model), and the latter are called endogenous (determined inside the model) parameters. To build a model of the functioning of a certain system means to find or postulate an operator (function) that connects unknown and known parameters of the model. When constructing macroeconomic models, the following four types of functional equations are usually used:
1. Behavioral functions that express the preferences that have developed in society. Thus, the revealed pattern of distribution by households of their income between consumption (C) and savings (S) can be represented in the form of a consumption function (C = C (y)) or a savings function (S = S (y)).
2. Functions characterizing the technological conditions of production. For example, a production function.
3. Institutional functions representing institutionally established dependencies between the parameters of the model. For example, the amount of tax revenue (T) is a function of income (y) and of the tax rate established by the relevant institution (Tu): T = Tuu.
4. Definitional functions expressing dependencies arising from the verbal definition of economic phenomena. For example, aggregate demand in the goods market (YD) refers to the total consumer demand of households (C), investment demand of the business sector (I), the State (G) and abroad (Xn). This definition can be represented as the identity YD = C + I + G ± Xn, where Xn is the difference between exports and imports.
As a rule, in macroeconomic models, as exogenous parameters, production technology in the form of a production function and the nature of the behavior of economic entities in each of the markets in the form of their functions of supply and demand are specified. The endogenous indicators obtained from the solution of the model are the value of real national income, the level of employment, the real wage rate, the real interest rate and the price level. Of particular interest is such a vector of endogenous quantities, at which the economy is in a state of general equilibrium.
General economic equilibrium. This is a state in which the volume of production and the proportions of exchange have developed in such a way that in all markets equality between supply and demand is simultaneously achieved and at the same time none of the participants in market transactions is interested in changing their volumes of purchases or sales. Economic equilibrium is an ex ante category of analysis. In the past period, supply and demand are always equal to each other: last year, as many goods were sold as they were bought, or vice versa. To determine the state of the general economic equilibrium means to find out under what conditions all participants in the market economy will be able to realize their goals. Therefore, macroeconomic equilibrium corresponds not only to a certain volume and structure of the supply of goods, but also to the satisfaction of market participants with the fact that everyone was able to implement the transactions planned by him. Such a fact, for example, that the sale and purchase of consumer goods does not in itself indicate the presence of economic equilibrium in the consumer market. It is also necessary to know whether the producers wanted to sell, and consumers wanted to buy just such a quantity at the existing costs, revenues and prices. In other words, it is necessary to find out whether producers have super-planned increases in stocks of finished products, and consumers have forced savings.
Achieving a general economic equilibrium does not mean that now every participant in the market economy is satisfied with his position; equilibrium simply states that by changing the volume and structure of purchases or sales, no one will be able to improve their well-being under the current conditions.
The general economic equilibrium is not a typical state of a market economy, since independently developed plans of sovereign entities can only accidentally be mutually agreed. However, the behavior of subjects in a market economy is determined by their desire to achieve equilibrium. Knowing, for example, that the equilibrium volume of investments is 20 billion rubles, while in the current period it was equal to only 15 billion rubles, it is possible to predict an increase in the volume of investments.
To understand the specifics of the current economic situation and make decisions on economic policy measures, it is important to identify whether the economic equilibrium is stable or unstable. If, in response to an exogenous impulse that disturbs the equilibrium, the system itself, under the influence of internal forces, returns to the equilibrium state, then the equilibrium is called stable. Economic equilibrium is called unstable if, after an exogenous impulse, it does not recover on its own. Therefore, along with determining the conditions for establishing a general economic equilibrium, it is necessary to investigate whether the equilibrium will be stable or not.
Depending on the extent to which time is taken into account in the study of economic phenomena, three types of analysis are distinguished: static, comparative statics and dynamic. Static analysis determines the values of endogenous parameters at some point in time. If the model allows you to determine the values of endogenous parameters at different points in time, but does not describe the process of transition from one equilibrium state to another, then this is a model of comparative statics. The process of transition of the economy from one state to another is investigated in the course of dynamic analysis, in which exogenous and endogenous variables are considered as functions from time to time: y(t), P(t). Within the framework of dynamic analysis, the reasons for the possible non-return of the economy to the equilibrium state after an exogenous shock (shock) are also clarified.
Due to the interconnectedness of all endogenous macroeconomic parameters, their equilibrium values, as a rule, can be determined only jointly on the basis of solving a system of equations describing the interaction of macroeconomic actors simultaneously in all macroeconomic markets. Macroeconomic models act as a tool for solving these problems.