Macroeconomics concept was introduced by Ragnar Frisch in 1933 during the
period of great economic depression, which was globally applies to be relations
among broad economic aggregates.
In 1936, Macroeconomics was brought into prominence through the agitations
and questioning of John Maynard Keynes in his work titled; The General Theory
on Employment and Money. This break through subsequently gave rise to the
Keynesian cross which is now referred to as Keynesian Economics.
The term Macroeconomics can be defined as the study of aggregate variables in
an economy such as total consumption level, autonomous investment and
government expenditure. That is, it studies all the sectors of the whole economy.
In a clear term, it is the study of the elephant‘ economy, that is, the study of the
aggregation of the entire economy.
Self Assessment Exercise
i. Explain in the detail the meaning of macroeconomics.
Features and Nature of Macroeconomics
The characteristics or features of macroeconomics are encompassed in its
summative or aggregative impact on variables that concern the entire
geographical boundary called nation or country. The study of macroeconomics
generally involves the study of a number of variables that affect the whole
elephant economy. Such variables include, among others, the rate of inflation i.e.
changes in general price level, population and other demographic issues, public
finance, national income accounting and determination, employment and wage
determination, international trade and balance of payment issues, foreign
exchange and domestic currency value stabilization, economic planning issues
and economic growth and development, to mention but a few.
The nature, like feature, is the general outlook of macroeconomic conditions
which encompasses the characterization of the entire system. In a nut shell, the
nature of macroeconomics includes the macroeconomics variables and policy
objectives.
Self Assessment Exercise
i. Explain in the detail, the characterization of macroeconomics.
Macroeconomics versus Microeconomics
Macroeconomics Concepts and Analysis
Macroeconomics is the study of the economy as a whole. In macroeconomics
emphasis is on aggregate economic variables such as the economy‘s level of
employment, total output and income, total money supply, overall government
spending, the levels of taxes, investment and saving and so on. It follows that
macroeconomics explores the problems of unemployment, inflation, external
disequilibrium, sluggish economic growth, general poverty and inequality in the
macro-economy.
Microeconomics Concept and Analysis
Microeconomics is concerned with specific segments of the economy,
particularly the behaviour of individual, consumers and firms, and of groups of
firms in industries. As a branch of economics, it examines how resources are
organised, controlled and rewarded in various economic activities, as well as
how relative prices of goods and services are determined. The main topics falling
within microeconomics include the theory of price and wage determination, the
theory of consumer behaviour, the theory of production and welfare.
Differentiation between Macroeconomics and Microeconomics
Microeconomics studies economic units such as household, firm and
government. Any economics study that has to do with sub-aggregate and
independent units in an economy is termed microeconomics. Therefore any
economics study that is related to how market operates, organisation of firms
into industries, public finance by sector and general behaviour of household
consumers and producers are embedded in microeconomics studies. On the other
hand, the study of macroeconomics involved the totality (aggregate) of the entire economy. Any study that is related to population, national income, taxation,
inflation, aggregate money supply and demand, unemployment, international
trade and policies that regulate the workability of the entire economy is covered under macroeconomics.
Although, microeconomics pre-empts decision making, but all decision that are
made collectively by government are made under macroeconomics framework.
Both macroeconomics and microeconomics are important for economic analysis,
which are regarded as necessary apparatus of thought.
They have both theoretical and practical importance in the area of :
Understanding the working of the whole economy.
Providing tools for economy policies.
Efficient allocation and employment of resources.
Business decision
Understanding the problems of taxation.
International trade and balance of payment.
Examining the condition of economic welfare.
Economic and social prediction.
Construction and use of model for actual economic phenomena.
In a nutshell, if an economy is likened to an elephant, the study of the
entire elephant is macroeconomics study while, the study of the elephant
leg, tusk, and tail are microeconomics studies.
Self Assessment Exercises
i. Differentiate between microeconomics and macroeconomics concepts in clear terms
ii. Explain microeconomics concept in clear terms.
iii. Explain macroeconomics concept in clear terms
Limitations of Macroeconomics
There are certain limitations of macroeconomics analysis and these are as
follows:
1. Fallacy of Composition: In macroeconomic analysis the aggregate economic behaviour is the sum of individual activities. But what is true of individuals is
not necessarily true of the economy as a whole. For example, if total savings in
the economy increase, it will bring about a depression unless the savings is
invested. If the individual depositor withdraws funds simultaneously, there will
be a run on the banks and the banking system will be adversely affected.
2. It regards the aggregate as homogenous: Macroeconomic analysis regards
the aggregates as homogenous without caring about their internal composition
and structure. The average wage in a country is the sum of wages in all
occupations, i.e. wages of clerks, typists, teachers, nurses, etc. But the volume of
aggregate employment depends on the relative structure of wages rather than on
the average wage. For instances, if wages of nurses increase but that of typists
fall, the average may remain unchanged. But if the employment of nurses fall a
little and that of typists rises, aggregate employment would increase.
3. Aggregate variables may not be necessarily important: The aggregate
variables which form the economic system may not be of much significance. For
instance, the national income of a country is the total of all individual incomes. A
rise in national income does not mean that individual income has risen. The
increase in national income might be the result of the increase in the incomes of
a few rich people in the country. Thus a rise in the national income of this type
has little significance from the point of view of the community.
4. Indiscriminate use of Macroeconomic analysis: An indiscriminate and
uncritical use of macroeconomics in analysing the problems of the real world can often be misleading. For example, if the policy measures needed to achieve and
maintain full employment in the economy are applied to structural
unemployment in individual firms and industries, they become irrelevant. Also, measures aimed at controlling general prices cannot be applied with much
advantage for controlling prices of individual products.
5. Statistical and conceptual difficulties: The measurement of macroeconomic
concepts involves a number of statistical and conceptual difficulties. These
problems relate to the aggregation of microeconomic variables. If individual
units are similar, aggregation does not present much difficulty. But if
microeconomic variables relate to different individual units, their aggregation
into one macroeconomic variable may be wrong.
Self Assessment Exercise
List and explain limitations of macroeconomics
Conclusion
In this unit, we conclude that in everyday usage, macroeconomics involves
anything that connects or concerns the entire economy, which is the ―elephant
economy‖. We equally conclude that the nature of macroeconomics has to do
with what macroeconomic entails, that is the characterization of macroeconomic
theories, while microeconomics entails study of the same ‘elephant economy‘
but in units or parts. It is observable that the macroeconomic study is achievable
through unit study that is microeconomic study. We however, differentiated
clearly between macroeconomics and microeconomics.
Summary
The unit vividly looked at composition of macroeconomics and discusses in
details the characterization of the macroeconomic theory, that is, what
macroeconomic include and precludes. This unit also looked at composition of
macroeconomics and microeconomics concepts and differentiates clearly
between the two concepts and discusses in details the characterization of the two.
Marked Assignment
1. Vividly explain macroeconomic concept and theory.
2. List and explain various topics that could be discussed under
macroeconomic concepts.
3. Define macro economy as different from macroeconomic
4. Vividly explain microeconomic concept and theory.
5. Discuss macroeconomic concept and theory.
6. Differentiate between macroeconomics and microeconomics.
References/Further Readings
Attah B.O, Bakare, T.A. & Daisi, O.R., (2011); Anatomy of Economics
Principles, Q&A (Macroeconomics), Raamson Printing Press, Oke-Afa, Isolo,
Lagos, Nigeria
Amacher, R and Ulbrich, H, (1986); Principles of Economics, South Western
Publications Co. Cincinnafi, Oliso
Bakare –Aremu T.A, (2013); Fundamental of Economics Principles
(Macroeconomics), Raamson Printing Press, Oke-Afa, Isolo, Lagos, Nigeria
Familoni K.A, (1990); Development in Macroeconomics Policy, Concept
Publications, Lagos, Nigeria
Fashina E.O, (2000); Foundations of Economics Analysis (Macro Theories),
F.E.F International Company, Ikeja, Lagos, Nigeria
Jhingan M.L, (2010); Macroeconomics Theory, 12
th
edition, Vrinda
Publications (P) Ltd. Delhi, India
Jhingan M.L, (2010); International Economics, Vrinda Publications (P) Ltd.
Delhi, India
Lipsey R.G, (1979); An Introduction to Positive Economics, Hayper & Raw,
London
Umo J.U, (1986); Economics; An African Perspectives , Johnwest, Lagos
Nigeria.
