Macroeconomics differs significantly from microeconomics in that in the former, we tend to focus on aggregates, the collective value of some item of interest, such as income, spending, etc. In this chapter segment, the focus is on aggregate demand and aggregate supply. These are, obviously, the demand and supply functions for the entire economy. Much of macro. also deals with policy – that is, what to do about economic problems and challenges. By default really, it’s the government which plays the leading role in developing and implementing macroeconomic policy. Stabilization policy is the effort to keep economic growth on track without experiencing dramatic price-level changes. In doing so, the government intervenes in the economy, sometimes stimulating or contracting the demand side of the economy, sometimes the supply side. Which of these two sides to the economy – AD or AS – are in your mind the most critical points of focus in terms of economic policy? Is managing aggregate demand (particularly from households) the most obvious and effective way to manage output, or is working with the aggregate supply side (that from firms) the best way to go?
