National economics: Meaning, Significance, Importance and Limitations


Meaning Of National Economics

National economics refers to branch of economics that studies the behaviour and performance of overall economy. It is one which conducts study with regard to economic activities comprising of economic issues and economic problems from a wider perspective. National economics is also termed as macroeconomics. This branch focuses on understanding the pattern of overall economy, that is how market or other systems operating on a wider scale behaves. National economics takes into consideration the distinct economy wide phenomenon such as unemployment, aggregate demand, aggregate supply, national income, gross domestic product, inflation and output, etc. It is focused toward behaviour, performance and structure of economy as a whole, as compared to microeconomics that is more focused towards choices made by individual parts of economy i.e., individuals, industries, households, etc. National economics is actively used by government and distinct corporations for formulation of economic policies and strategies. 

There are two major areas of macroeconomic research that are long-term economic growth and short-term business cycles. Economic growth denotes rise in aggregate production within the economy. The macroeconomists study factors that will either support or retard economic growth for supporting the economic policies leading to progress, development and improved living standards. Business cycle, on other hand, refers to natural rise and fall of economic growth occurring over a period of time. It denotes the expansion and contraction in economic activities that is experienced by economy occasionally. This is an efficient tool used for analysing the business performance as well as the economy.

Significance of National Economics 

The key significance of macroeconomics that is crucial and knowledgeable for student of economics is as discussed in points given below: – 

Theory of National Income: The national economics studies distinct concepts of national income, its elements, methods of measuring it and social accounting. 

Theory of Employment: The problems associated with employment and unemployment are also studied by macroeconomics. It performs study on distinct factors influencing the employment level such as effective demand, aggregate supply, aggregate consumption and aggregate saving, etc. 

Theory of Money: Level of employment is affected to a greater level by changes in demand for and supply of money. The macroeconomics conduct study on functions of money, theories associated with it and also the system of banking institutions. 

Theory of General price level: Macroeconomics has core issue of determining the variations in general price level. The principal issues involved here include problems with regard to deflation and inflation. 

Theory of International trade: Trade in between distinct countries is also studied by macroeconomics. This branch of economy pays great attention on tariff protection and theory of international trade. 

Economic growth and development: The macroeconomics also include problems associated with economic growth or rise in per capita real income. 

Budgetary deficit and fiscal policy: Budgetary deficit and fiscal policy have emerged as core issues to macroeconomics, in the wake of globalization and privatization of world economies. 

Interest rates and monetary policy: The monetary measures being taken by government due to varying interest rates for the purpose of stimulating economic growth with stability are included within monetary policy. This is also regarded as key area of macroeconomics study. 

Importance of National Economics

The importance of macroeconomics can be well-understood from points given below: – 

Assists in understanding the functionality of economy

Understanding of modern economy in today’s time is very complex topic. There are several economic factors operating within it that are totally independent to one another. A person cannot rely only on individual units alone for having good understanding of its organization and its functioning. Therefore, study of economy as a whole has become quite essential. 

Formulation of Economic policy

The formulation of economic policy is facilitated a lot by macroeconomics. Most of the modern government uses aggregate data such as national income, aggregate investment, aggregate employment, etc in framing of economic policies.  

Study of national income

A study of national income is main factor in modern times, that helps in knowing the economic condition of almost every country around the world. All this is done via macro analysis alone.

Economic planning

Formulation of economic plan gets facilitated via knowledge on mutual dependence of distinct sectors, nature of poverty, employment level and the composition of national income. It is through the study of macroeconomics only that makes it possible to gain knowledge on all of these aggregates. 

Study of Trade cycles

Knowing the trade cycle of issues of economic fluctuation is important in order to avoid or be prepared for any financial crises or adverse situations. The economical variations take place in capitalist economy very rapidly and can have adverse effect on overall economy. The aggregate factors like demand, output supply, aggregate saving, etc. becomes the basis for economic fluctuations. Therefore, the study of macroeconomics become crucial for knowing about causes of trade cycle and necessary measures for checking them.

Estimate material welfare

The study of individual units cannot reveal whether a material welfare has increased or not. It can only be done via studying on aggregate factors such as total employment, total income, aggregate consumption etc. Macroeconomics, therefore, this way assists in assessing the material welfare. 

Limitations of National Economics

Various short-comings of macroeconomics are as listed below: – 

Considers aggregates as Homogenous

The major defect that lies within macro analysis is consideration of all aggregates as homogenous without thinking about their internal composition and structure. Individual data may not be similar with regard to their format and design, and may vary from each other. Therefore, when these single figures are compiled together in order to get an aggregate value then it might not be useful. 

Fallacy of Composition

Macroeconomics involves the fallacy of composition as it functions on the basis of aggregate values. It takes into assumption that aggregate economic behaviour is sum total of all individual activities. But what is true in case of individual may not be necessarily true in case of economy as whole. 

Unnecessary aggregate variables

A macro analysis cannot be considered as complete analysis as it does not give importance to individual units but studies the only whole economy collectively. The aggregate values cannot be utilized for purpose of examining the individual elements in separate manner. 

Too much generalization

There is too much generalization involved in macro analysis such that policies are framed on the basis of study conducted on economy as a whole. Many times conclusion derived from aggregated data, can’t stand true for all the individuals. 

Ignores individual consumers

The concept of macroeconomics ignores the importance of individual unit, consumer, producer, etc. as its fundamental involves utilization of aggregate data. Therefore, it can said that study of macroeconomics is not useful as ignores the welfare of individual consumers. 


The application of macroeconomic measures when done extensively for aiming at 100% results seems to be irrelevant. It may mislead economists during the analysis of distinct problems of economy. For instance, there is no scope in applying the same principle in case of full employment and structural unemployment.  

Statistical and conceptual difficulties

Distinct economic phenomena are studied under macroeconomics with the help of statistical and conceptual methods. The investigators face great complexities while following these methods. Such complexities are associated with the aggregation of micro economic variables.