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Posted: May 10, 2025
In contrast to microeconomics focus on individual actors in economic systems, macroeconomics studies economic systems as a whole. The purpose of this field is to understand overall economic stability, health, and growth. Macroeconomic indicators enable government officials to craft economic policy, and communicate regional or national economic health to the public. Businesses use macroeconomic data to plan investment and expansion strategies. Labour leaders use it for collective bargaining, to educate union members, and agitate for redistribution.
Economies are unbelievably complicated systems at a city level, let alone on a global scale. Encapsulating everything from a pack of gum purchased at a corner store, to billion dollar government infrastructure spending and private sector investment, involves understanding broad categories of economic activity. Let’s look at the most relevant macroeconomic actors.
First off we have household consumers. Rather than the individual demand studied in microeconomics, macroeconomics aggregates household demand, accounting for everything everyone consumes across an entire population. Businesses also play a crucial role in macroeconomic calculations. Like household consumers, firm behaviours like consumption and investment are aggregated into estimations of society-wide business activity. In combination, households and businesses account for the private sector supply and demand within an economic system.
Another major macroeconomic actor is government, the public sector. Government plays a fundamental role in every economy. While many neoliberal capitalist governments claim they are nothing but a nuisance to the mythical free market, the state always frames the economic circumstances in which market operations take place. Governments spend on public services like health and education, tax citizens and businesses, expand and contract the money supply, invest in infrastructure and technology, and much more. There are two major categories of government activity when it comes to macroeconomic analysis:
Monetary Policy involves decisions made by central banks that affect an economy’s money supply. These include setting base interest rates, raising or lowering reserve requirements for banks, and even purchasing stocks or bonds to stabilize prices or markets. The availability or ‘cheapness’ of money has major consequences for private sector investment, household and corporate debt, and more.
Fiscal Policy involves the ways that governments spend money and tax households and businesses. These include raising or lowering taxes to alter household or business’ disposable income, running a deficit by spending to boost demand during economic downturns, funding public goods like infrastructure and social services, and executing state-run production in key industries. Direct government spending most often occurs for necessary but unprofitable things like road building/maintenance or sanitation systems.
Households, businesses, and government are all internal components of an economic system, but macroeconomics also studies external factors like foreign trade. Trade enables economies to acquire goods, services, or inputs that they require for consumption or production from other nations or companies that have or produce them.
Foreign trade is measured by a deficit or surplus with each trading partner. A trade deficit means that a nation purchases more goods from their trading partner than the trading partner sells to them. A trade surplus is the opposite, when a nation sells more goods to their trading partner than the trading partner buys from them.
This relationship is reciprocal, so one nation’s deficit always equals their trading partner’s surplus. For example, say South Africa exports $5B worth of goods and services to Brazil, and imports $10B worth of goods and services from Brazil. This means South Africa has a $5B trade deficit with Brazil, and Brazil has a $5B trade surplus with South Africa.
Now that we understand the main macroeconomic actors, we can look at some of the main macroeconomic indicators, with which economists and policymakers measure economic health.
Gross Domestic Product (GDP) is the most common overall macroeconomic indicator. It is intended to unify all of the economic output for a city, state/province, country, or even the entire world. GDP is calculated as follows: Consumption + Investment + Government Expenditure + (Exports - Imports). GDP is a useful but imperfect measurement because of its flattening effect on economic activity. GDP calculations depend on what those calculating it consider economic activity. In this way, a $2B GDP increase can come from the invention, production, and distribution of a useful new technology, or a $2B raise in rent by landlords. Socialist economists must always be wary of this financial flattening.
Inflation is the rate at which overall price levels are rising in an economy. Inflation has many different, often interlocking causes. Price rises can come from healthy economic growth, inadequate supply, spiking demand, excess money supply, the rising cost of inputs or transportation, etc.. Consumer price inflation is discussed most frequently, because it affects daily purchases like food. However, there are many types of inflation, such as asset price inflation, which can drive stock, housing, or other asset ‘bubbles.’
Unemployment Rates are the measure of how many people don’t have a job in an economy. There are many factors incorporated into unemployment calculations including whether someone is actually looking for work, and how long they’ve been looking. Other considerations around unemployment concern whether or not economic policymakers think there is a ‘healthy’ amount of unemployment in an economy. Capitalist economies maintain a certain percentage of unemployed workers as a ‘reserve army of labour.’ This excess supply of labour is used to drive down wages, which rise with demand for labour. Meanwhile, socialist economies aim to eliminate unemployment, ensuring that everyone who wants to make productive economic contributions has the opportunity to do so.
These indicators are used by legitimate policymakers and junk economists alike, as both scientific inputs for economic models, and political propaganda tools. As socialist economists, our question should always be: how well do these macroeconomic indicators map to socialist economic outcomes? Do we need more effective socialist macroeconomic measures?
In our next post, we will examine the dialectical relationship between microeconomics and macroeconomics, as well as the class dynamics at play within both of these disciplines.
If you're interested in these ideas, don't hesitate to reach out. This project is a conversation, not a lecture, so all good faith feedback is encouraged, especially from trained economists.