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What Is the Connection between Macroeconomics and Economic Growth?

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  • Written By: Daniel Liden
  • Edited By: Jenn Walker
  • Last Modified Date: 10 December 2018
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Macroeconomics is a broad economic field that deals with the behavior of an economy as a whole. This can involve the entire global economy or the economy of a given nation or region, insofar as it is possible to independently study such economic entities. Various trends and factors in macroeconomics, including interest rates, tariffs, and national economic policies, directly affect economic growth, so macroeconomics and economic growth are inseparably connected. The link between macroeconomics and economic growth can be seen both theoretically and practically. Academic studies of macroeconomics often focus on how various general economic processes and policies contribute to or harm economic growth while economic policy makers tend to enact practical policies that lead to growth.

Though the academic study of macroeconomics examines a vast range of topics, the relationship between macroeconomics and economic growth is often at the forefront of such academic pursuits. Determining which combinations of factors lead to long-term, sustained economic growth is, in fact, one of the main areas of study in academic macroeconomics. Researchers use a variety of mathematical principles, computer modeling systems, and other theoretical constructs and ideas to generate data about the relationship between macroeconomics and economic growth. Academic economists also tend to examine actual past and present macroeconomic policies and trends in order to determine their causes and consequences in the real world.

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Economic policy-makers and advisers have a substantially different set of problems, as they are expected to use their knowledge of macroeconomics and economic growth to set practical economic policies in the real world. In many cases, such economists have similar training to academic economists and use many of the same tools. They must, however, work within the constraints of real-world issues, such as resource limitations, government regulations, and global political situations. Furthermore, there is substantial additional pressure because of the real-world consequences of making decisions that affect the movement of resources on a broad scale. A good economic policy can make many people happy, keep people employed, and generally elevate nearly everyone affected while a poor policy can lead to job loss, devastating resource shortages, and other negative effects.

Many different theories and models are used to describe the connection between macroeconomics and economic growth. Some argue that increasing the productive capacity of a nation is the best way to promote economic growth. Others place greater emphasis on advancements in technology. Still others are based in theories of government regulation and optimizing patterns of international trade. "Perfect" macroeconomic models and policies have not yet been devised, and real-world economic decisions often have deleterious effects on economic growth.

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discographer
Post 3

I think that when it comes to macroeconomics and economic growth, the main factor is international trade. This is why the World Trade Organization (WTO) was formed in the first place. It was recognized that all countries have something to gain from international trade.

We had a guest speaker in my macroeconomics course last week who worked at the WTO. He told us about what the WTO does. WTO aims to make trade easier between countries by getting countries to reduce tariffs and it also helps resolve issues between them.

So macroeconomics isn't just about growth at the national level. It's also about global economic growth and mutual benefits. It's really about how all countries can grow and develop by working with one another instead of ignoring or fighting with one another.

ddljohn
Post 2

@bear78-- I think that the last sentence of the article summed it up very well. There are no perfect macroeconomic models for economic growth. Of course, economists use the data they have to make predictions and encourage beneficial policies. But unlike computer statistics, real life is unpredictable and new barriers and problems to economic growth come up all the time.

We are also in an era where the global economy is greatly driven by technological advancements and innovation. And then there are political and social changes that can increase or decrease trust and investment in an economy rather abruptly. So it's not possible to predict in perfect accuracy how economic growth will look in the future. Macroeconomic models can give us an idea and help us prepare to some degree, but there will always be things we're not prepared for.

bear78
Post 1

If it's possible for economists to study various indicators of macroeconomics to predict national and international economic growth, then why do so many economies experience recession and depression? If these can be predicted, they can also be averted right?

It seems to me that macroeconomics is fine in theory but when it comes to the real economy, it's a different ball game.

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