This document provides an overview of macroeconomics as a subject, including: - Definitions of macroeconomics as the study of aggregates and averages across the whole economy. It deals with issues like employment, growth, inflation. - Key differences between microeconomics which looks at individual units, and macroeconomics which looks at the overall economy. - The importance of macroeconomics in understanding how the economy works overall and for policymaking. - Limitations of macroeconomics include overgeneralization and issues with aggregates. - Explanations of the circular flow of income and models showing flows between households, firms, and other sectors in two and three sector economies.

1. N.DHINAKARAN
ASSISTANT PROFESSOR OF ECONOMICS
VIVEKANANDA COLLEGE
TIRUVEDAKAM WEST
MADURAI
Course Title : Macro Economics-I
Course Code: : 01CT 51

2. UNIT –I
Macro Economics: Meaning, Nature and Scope of Marco Economics –
Differences Between Micro and Macro Economics - Importance and
Limitations of Macro Economic Analysis – Circular Flow of Income –
Two and Three Sector Models.

3. Introduction
The term Macro in English has its orgin from Greek word “Makros” which
means large.
The term Micro and Macro Economic were coined by Ragnar Frisch in 1933.
Macroeconomics is also known as the theory of income, and employment, or
simply income analysis.
The Mercantilist were concerned with the economic system as a whole in the
16th and 17th centuries.
According to Physiocrates wealth of nation was derived soley from agriculture.
Malthus, Sismondi and Marx in the 19th century dealt with macro economics
problems.
Walras, Wicksell and Fisher were the modern contributor to the development of
macroeconomic analysis before Keynes.
But credit goes to J.M. Keynes who finally developed a General Theory of
Employment, Interest and Money in the wake of Great Depression.

4. Meaning and Definition of Macroeconomics
• Prof. J.M. Keynes is known as father of modern macroeconomics.
Macroeconomics became popular after great depression of 1929- 33.
• Prof. J.M. Keynes wrote the book General Theory of Employment, Interest
and Money in 1936.
Meaning of Macroeconomics
• It is the study of aggregates or groups or the entire economy such as gross
domestic product, total employment, aggregate demand, aggregate supply,
total savings, general price level, etc.
Definition of Macroeconomics
• According to Shapiro, “ Macro economics deals with the functioning of the
economy as a whole.”
• Boulding says, “Macro economic theory is that part of economics which
studies the over all averages and aggregates of the system.”

5. Nature of Macroeconomics
Macroeconomics is the study of aggregates or averages covering the entire
economy, such as total employment, national income, national output, total
investment, total consumption, total savings, aggregates demand, and
general price level, wage level, and cost structure.
It is concerned with the problem of unemployment, economic fluctuations,
inflation or deflation, international trade, and economic growth. It is the
study of the causes of unemployment, and the various determinant of
employment.

7. Difference Between Microeconomics and Macroeconomics
Micro Economics Macro Economics
It is studies individual units of an economy. It studies the economy as a whole.
Microeconomic variables such as consumer demand
or producers supply.
Macroeconomic variables such as national income, total output, total
investment, aggregate demand, aggregate supply etc.
It deals with micro problems such as determination
of price of a commodity, a factor of production, and
satisfaction of consumer.
It deals with problems at macro level like employment, trade cycles,
international trade etc.
Price is the basic parameter of microeconomics. Income is the basic parameter of macroeconomics.
The concept of microeconomics are independent
concepts.
The concepts of macroeconomics are interdependent on one to
another.
Objectives of microeconomics is profit motive. Objectives of macroeconomics is to maintain price stability and full
employment in the economy.
Method of study in microeconomics is “Partial
equilibrium analysis".
Method of study in macroeconomics is “general equilibrium
analysis”.
Macroeconomics decision are taken by individual
economic agents for maximization of personal gain.
Macroeconomics decision are taken macro level institutional l agent
play significant role. They focus on the maximization of social
welfare

8. Importance of Macroeconomics
• To understand the working of the Economy
• Macroeconomics for Accelerating Economics growth
• Understanding Business cycles
• Formulating Government’s Macroeconomic Policies
• Individual Decision – Making
• Importance in Business Decisions

9. Limitation of Macroeconomics
Too much of generalisation
Aggregate tendency may not affect all sectors equally
 The fallacy of composition
To Regard the Aggregates as Homogenous
 Indiscriminate Use of Macro Economics Misleading
Statistical and Conceptual Difficulties

10. The circular flow of income or the circular flow model
• It refers to the flow of goods and services among the various sectors of
the economy, balanced by the flow of monetary payments made in
exchange for those goods and services.
• The circular flow income is called so because the movement of
income and expenditure continues throughout the economy and
repeats itself, forming the circular flow of income
• The two basic aspects of circular flow model
• Households
• Firms
• The model can be viewed from two different perspectives
• Real Flow
• Monetary Flow

11. Circular Income Flow in a Two Sectors Economy

12. Circular Income Flow in a Three Sectors Economy

13. THANK YOU