Macroeconomics

 1. Definition and Meaning of Macroeconomics

Macroeconomics is defined as the branch of Economics which studies economic issues or economic problems at the level of an economy as whole. In Macroeconomics, attention is focused on problems such as the level of unemployment, poverty, inflation etc. Issues related to national Income, Government Budget, Balance of Payment etc. also come under the scope of Macroeconomics studies.

 

2. Macroeconomics and Microeconomics: The Difference

 

SR.No.	Macroeconomics	Microeconomics
1	Macroeconomics studies problems of scarcity and choice at the level of an economy as a whole.	Microeconomics studies problems of scarcity and choice at the level of an individual, a household, a firm or an industry.
2	Macroeconomics studies or uses macroeconomic variables such as aggregate demand and aggregate supply.	Microeconomics uses variables such as Consumer’s demand and producer’s supply.
3	At the Macro level, institutional economic agents play a significant role as they focus on maximizing social welfare.	At Microeconomic level, economic decisions are taken largely by the individual economic agents such as consumers, producers, and the focus is on maximizing personal/individual welfare.
4	Macroeconomics studies General Equilibrium of the economy as a whole.	Microeconomics studies partial Equilibrium.
5	In Macroeconomics, determination of overall level of output, income and employment is the central issue.	In Microeconomics, allocation of resources is the central issue.

3. Emergence of Macroeconomics as a Separate Branch of Economics

 

Great Depression of 1930s was a landmark event in the History of Economic Thought as it led to the emergence of macroeconomics as a separate branch of Economics. Prior to the Great Depression, Macroeconomics was considered more like an extension of Microeconomics. It was believed by the classical economists that the principles of macroeconomics were enough to explain the behavior of the economy as a whole. There was no need to consider Macroeconomics as a separate branch of Economics

During the great depressions of 1930s, however, economics events unfolded in such a manner that classical economic thought was totally contradicted. The classical economists failed to find any answer to the “Low Level Equilibrium Trap”. In such a situation, Professor John Maynard Keynes, invented and formulated a Macroeconomic Model to break the vicious circle of “Low-Level Equilibrium Trap”. He diagnosed lack of “Aggregate Demand” as the root cause of the problems and suggested large scale expenditure by the government as a remedy. With the publication of his magnum opus work, “General Theory of Employment, Interest and Money (1936), the subject of Macroeconomics as a separate branch of Economics was born.