THE EMERGENCE OF THE MACROECONOMICS.

 

THE EMERGENCE OF THE MACROECONOMICS:

In this article I would like discuss the emergence of the birth of the Macroeconomics. There are tow main school of thought in economics – Classical school and Keynesian school. According to the classical thought of economics like J. S. Mill, TR Malthus, J.B Say, the economics always at full employment because of the free Play of market force in a free economy.

Here all the workers will to work get employment. Another important idea is that all the output which has been produced by the firm is sold, therefore the firm are at full capacity of their production. Any deviation from the level of full employment will be automatically wiped out by the market forces of demand and supply. Till early 1930s the Classical doctrine of automatic full employment was largely accepted. The Great Depression of early 1930s exploded the myth of automatic full employment that automatic working of market mechanism would ensure equilibrium level of income consistent with full employment of resources. The great depression of 1929 and the following years after that saw the output and employment levels in the countries of Europe and North America fell by huge amounts.

All these indecent brought its effect on the anther countries of the world as well. The demand for goods in the market was low, many factories were lying idle, output fell by huge amounts. In U.S.A. from 1929 to 1933, unemployment rate rose from 3% to 25% and aggregate output fell by about 33%. depression continued for more than 10 years and the economy did not automatically cone to the level of full employment.

Against this background of the great depression the well-known British Economist maned J.M Keynes gave his own theory and wrote his famous book the “Great Theory of Employment, Interest and Money” which was published in 1936 that brought about a revolution in economic thought called the Keynesian Revolution.

The Keynes criticized the Classical assumption of full employment and developed a new theory called as macroeconomics. The main cause of depression was the lack of purchasing power at the hands of the people which reduced the aggregate demand. The subject of macroeconomics was thus born in this way.