Key Points: How Macroeconomics Differ from Microeconomics
Macroeconomics studies the economy as a whole, unlike microeconomics which studies individual consumers and firms.
- It focuses on overall output, overall price level and total employment/unemployment, and on policies to improve these.
- Because most outputs, prices and employment levels move together, macroeconomics uses a single representative good and aggregate variables instead of analysing every individual market separately.
Key Points: Representative Goods and Sectors
Macroeconomics sometimes must look at sectors separately, not only at one “representative” good.
- Different sectors (agriculture, industry, services; households, firms, government) behave differently and affect each other, so studying their links explains the economy better.
- Instead of one good or one type of labour, macroeconomics often uses a few broad categories and analyses each sector’s output, prices and employment.
Key Points: Macroeconomic Agents
- Microeconomics studies individual agents and markets (consumers, firms, banks) aiming to maximise profit or satisfaction, taking big things like inflation or unemployment as given.
- Macroeconomics studies the economy as a whole (total output, overall prices, unemployment) and how public bodies (government, central bank, regulators) use policies on tax, spending, money and interest rates to achieve social goals.
Key Points: Emergence of Macroeconomics
Macroeconomics arose when economists saw that whole economies can stay stuck with high unemployment and low output.
- The classical view assumed all who wanted work would find jobs and factories would run at full capacity.
- The Great Depression (from 1929) shattered this idea; Keynes’ 1936 book The General Theory of Employment, Interest and Money studied the economy as a whole and founded modern macroeconomics.
