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Macroeconomics chapter 01
1. MACROECONOMICS
Meaning of Macroeconomics
Modern macroeconomics mainly owes to J.M. Keynes. His book, “The General
Theory of Employment, Interest and Money” published in 1936 has analytically
studied what causes large and prolonged fluctuations in the level of employment.
Macroeconomics deals with the aggregates of the system. The word macro means
large. Macroeconomics, thus, deals with the behaviour of various economic
variables that refer to the economy as a whole. These variables are—total national
income, aggregate employment, the extent to which the economy’s resources are
being fully employed, aggregate saving and investment, and the general price level
in the economy. Thus, under macroeconomics we study economy as a whole.
Macroeconomics is the study of the behavior and performance of the economy as a
whole.
According to Kenneth. E. Boulding, “Macroeconomics deals not with individual
quantities as such, but with aggregates of these quantities, not with individual
income, but with national income, not with individual prices but with price levels,
not with individual outputs but with national output.”
According to Gardner Ackley, “Macroeconomics concerns the overall
dimensions of economic life. More specifically, macroeconomics concerns itself
with such variables as aggregate volume of an economy, with the extent to which
its resources are employed, with size of the national income, with the general price
level, etc.”
According to Mankiw, “Macroeconomics is the study of the economy as a whole-
including growth in incomes, changes in prices, and the rate of unemployment. It
attempts both to explain economic events and to advise policies to improve
economic performance”.
Finally we can say, Macroeconomics deals with total or aggregate level of output,
aggregate level of consumption, aggregate level of investment, aggregate level of
employment and general price level in economy.
2. Scope of Macroeconomics
As a method of economic analysis macroeconomics is of much theoretical and
practical importance. In macroeconomics, we study how an economy operates as a
whole. It focuses on the aggregate measures such as aggregate demand, aggregate
supply, aggregate price level etc. It studies how these variables are determined and
how they change over time. It helps us in understanding various economic
relationships and economic problems at the economy or aggregate level. The main
focus of macroeconomics is on the theory of national income, theory of
employment, theory of money, theory of general price level, theory of economic
growth etc. these are the scope of macroeconomics
Theory of national income: Macroeconomics helps in the national income
analysis. It provides various methods to calculate the national income.
Theory of employment: Macroeconomics also helps in determining the level of
employment and unemployment in an economy.
Theory of Money: Macroeconomics studies the functions and theories of money.
It is useful in analysing the effect of a change in demand and supply of money on
the employment levels.
Theory of general price level: Macroeconomics studies how the general level
prices in an economy are determined and the effects of fluctuations on them.
Theory of economic growth: Macroeconomics emphasises on how to increase the
per capita income or national income. It aims at accelerating the economic growth.
Scopeof Macroeconomics
Theory of national
income
Theory of
employment Theory of money
Theory of
general price
level
Theory of
economic
growth
3. Difference between Microeconomics and Macroeconomics
Basis Microeconomic Macroeconomics
Meaning Microeconomics is that part of
economic theory which studies
the behaviour of individual units
of an economy.
Microeconomics is that part of
economic theory which studies
the behaviour of aggregates of
the economy as a whole.
Tools Demand and supply Aggregates demand and supply
Basic
objective
It aims to determine price of a
commodity or factors of
production.
It aims to determine income and
employment level of the
economy.
Degree of
aggregation
It involves limited degree of
aggregation. For example, market
demand is derived by aggregating
individual demands of all buyers
in the particular market.
It involves highest degree of
aggregation. For example,
aggregate demand is derived for
the entire economy.
Basic
assumptions
It assumes all the macro variables
to be constant, i.e. it assumes that
national income, consumptions,
savings, etc. are constant.
It assumes all the micro
variables, like decisions of
households and firms, prices of
individual products etc. are
constant.
Other name It is also known as ‘Price Theory’ It is also known as ‘Income and
Employment Theory’
Examples Individual income, individual
output.
National income, national
output.