The term 'Macro' is derived from the Greek word 'Uakpo' which means large.
Macro economics looks at the economy as a whole. It examines the factors that
determine national output and its growth overtime. It studies the economic
aggregates such as the overall level of prices, output and employment in the
According to R. G. D. Allen:
"The term macro economics applies to
the study of relations between broad economic aggregates such as total
employment, income and production".
In the words of Edward Shapiro:
task of macro economics is the explanation of what determines the economy's
aggregate output of goods and services. It deals with the functioning of the
economy as a whole".
Professor K. E. Boudling is of the view that:
economics is that part of economics which studies the overall averages and
aggregates of the economic system. It does not deal with individual incomes but
with the I national income, not with individual prices but with the price
level, not with individual output, but with national output".
Microeconomics looks at the individual units, household, the firm, the industry,
It sees and examines the "trees". Macro economics looks at the whole, the
economic aggregates. It sees and analyzes the 'forest'.
Importance/Issues/Scope of Macro Economics:
The importance/issues/scope, which are addressed in macro economics are in brief as under:
(i) It helps in understanding the determination of income and employment.
Late J.M. Keynes laid great stress on macro economic analysis. He, in his
revolutionary book, "General Theory, Employment interest and Money",
brought drastic changes in economic thinking. He explained the forces or factors
which determine the level of aggregate employment and output in the economy.
(ii) Determination of general level of prices. Macro economic analysis answers
questions as to how the general price level is determined and what is the
importance of various factors which influence general price level.
(iii) Economic growth. The macro economic models help us to formulate
economic policies for achieving long run economic growth with stability. The new
developed growth theories explain the causes of poverty in under developed
countries and suggest remedies to overcome them.
(iv) Macro economics and business cycles.
It is in terms of macro economics
that causes of fluctuations in the national income are analyzed. It has also
been possible now to formulate policies for controlling business cycles i.e.,
inflation and deflation.
(v) International trade. Another important
subject of macro economics
is to analyze the various aspects of international trade in goods, services and
balance of payment problems, the effect of exchange rate on balance of
(vi) Income shares from the national income. Mr. M. Kalecki and
Nicholas Kelder, by making departure from Ricardo theory, has presented a macro
theory of distribution of income. According to these economists, the relative
shares of wages and profits depend upon the ratio of investment to national
(vii) Unemployment. Another macro economic issue is to explain the causes
of unemployment in the economy. Stagflation is another important issue of modern
economics. The Keynesian and post Keynesian economists are putting lot of
efforts in explaining the causes of cyclical unemployment and high unemployment
coupled with inflation and suggesting remedies to counteract them.
(viii) Macro economic policies. Fiscal and monetary policies affect the
performance of the economy. These two major types of macro economic policies are
central in macro economic analysis of the economy.
(9) Global economic system. In macro economic analysis, it is
emphasized that a nation's economy is a part of a global economic system. A good
or weak performance of a nation's economy can affect the performance of the
world economy as a whole.
Limitations/Exceptions of Macro Economics:
The main limitations/exceptions of macro economics are as follows:
(i) The macro economies ignores the welfare of the individual. For instance,
if national saving is increased at the cost of individual welfare, it is
not considered a wise policy.
(ii) The macro economics analysis regards aggregates as homogeneous but does
not look into its internal composition. For instance, if the wages of the clerks
fail and the wages of the teachers rise, the average wage may remain the same.
(iii) It is not necessary that all aggregate variable are important. For
instance, national income is the total of individual incomes. If national income
in the country goes up, it is not necessary that the income of all the
individuals in the country will also rise. There is a possibility that the rise
in national income may be due to the increase in the incomes of a few rich
families of the country.
(iv) The macro economic models are designed mostly to suit the developed
countries of the world. The developing countries face different economic
realities, so they do not benefit much from them.
Interdependence of Micro and Macro Economics:
The micro and macro economics are interdependent. We cannot draw any
precise line of separation between micro and macro economics. We cannot put
them in water light compartments. Both these approaches help us in analyzing
the working of the economy. If we study one approach and neglect the other, we
are considered to be only half educated. We should integrate the two
approaches for the successful analysis of the working of economic system. The
macro approach should be applied when aggregate entities are involved and
micro approach when individual parts of the economy are examined. If we ignore
one and lay emphasis on the other, it I may lead to wrong or inadequate
conclusions. In the words of Gardner Ackley:
"Actually, the line between macro
economics and micro economics theory cannot be precisely drawn. A true general
theory of the economy would clearly embrace both. It would explain individual
behavior, individual I outputs, incomes and prices and the sums or averages of
individual results I would constitute the aggregates which macro economics is