Fundamentals of Macroeconomics

Macroeconomics and microeconomics are the two sides of the coin called economics. Macroeconomics implements the economic theory at wider levels, it focuses on issues of the economy as a whole, instead of the individual units. The changes in the tax regime by governments can be said to be the example of things that fall under macroeconomics. In this article, we will be discussing what macroeconomic theory is all about, the differences between macroeconomics and microeconomics and the need of macroeconomics.

Macroeconomics includes a larger aspect of economics. Therefore, macroeconomics can be stated as the study of economics with respect to the aggregates of an economy. It helps in conceptualizing the behavior of aggregates of the economy and considers macro-phenomenon which are triggered by the collective units of an economy.

Macroeconomics consists of generalized concepts, such as GDP, national income, national consumption expenditure etc. The terms like GDP, are referred to when the economic states of countries are compared.

Aggregate supply and aggregate demand are the two important tools of macroeconomics. These are also called income theory.

Macroeconomics vs Microeconomics

Macroeconomics deals with the economy as a whole, whereas microeconomics deals with individuals.

Aggregate demand and aggregate supply are used in macroeconomics, whereas on the other hand, microeconomics employs demand and supply.

Determination of income and employment in the economy is focussed in macroeconomics, whereas microeconomics focuses on factors of production and the determination of the price of goods or services.

Since macroeconomics deals with the general aspects of the economy, factors are aggregated completely. Whereas the degree of aggregation is limited in microeconomics.

Macroeconomics is referred to as income theory. Microeconomics is referred to as price theory.

On the application of economic theory to two different scales, microeconomics and macroeconomics differ from each other significantly. However, inspire of the significant differences, both micro and macroeconomics are not mutually exclusive of each other. While macroeconomics refers to the aggregation of economic behavior by the individual units, microeconomic aspects tend to change due to the changes in macroeconomic aspects and vice versa.

The Need for Macroeconomics

During the earlier days, it was considered that the concepts of microeconomics are sufficient in order to explain economic behaviors. But, later on, it was observed that economic aspects differ when they are applied to two different scales. The concepts of microeconomics were not sufficient enough to explain the various phenomenon taking place at a higher level of aggregation. Further, there also emerged certain paradoxes which microeconomics was not able to explain.

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