Discuss the relevance of macroeconomic principles in economic decision making.

Expert Answers
pnrjulius eNotes educator| Certified Educator

Macroeconomics isn't simply relevant to economic policy decisions; it's essential. I don't think it's an exaggeration to say that if you're not using macroeconomics to decide your economic policy, you're doing it wrong.

This is particularly true if we're talking about large-scale government policies, like the fiscal and monetary policy of an entire country. There, macroeconomics should always be at the fore; every new proposed change in spending, taxation, money supply, or interest rates should always be assessed in terms of its macroeconomic impact on variables such as GDP, inflation, and unemployment. Failure to do so is irresponsible and dangerous---and a lot of really big policy failures can be traced to that. The huge surge in unemployment in the Great Recession could probably have been prevented if policymakers around the world had been more careful to make their decisions based upon macroeconomics.

For smaller-scale decisions it's less obvious what macroeconomics has to tell us; even a very large business like Walmart has a fairly small impact on the economy as a whole. (Walmart annual revenue is about $500 billion, while the GDP of the US is $18.7 trillion. This makes even a behemoth like Walmart less than 3% of US GDP.) And of course, most businesses are far smaller than that.

But even if you can't control macroeconomics, you will be affected by it. It is helpful for business administrators and even private individuals to understand what's going on in the larger economy, so that they can plan their own decisions better. If you expect inflation to go up soon, maybe you should stock up on things now before they rise in price. If you expect a lot of unemployment in a few years, you might want to find another job before it's too late.

Of course, what will really bake your noodle is that the aggregation of millions of people thinking that same way can make macroeconomics self-fulfilling; all those people stocking up on toilet paper because they expect higher prices and shortages can cause the very shortage they fear, and all the people quitting jobs to find new ones can depress spending enough to stop new jobs from being created. This is something that policymakers have to be very careful to take into account.