Meaning, Nature and Scope of Macro Economics

The word 'Macro Economics' comes from the Greek word 'makros', meaning large. Macro Economics is the branch of Economics that studies the economy as a WHOLE, rather than the behaviour of any single unit within it. Where Micro Economics zooms in on an individual consumer, a single firm, or one particular market, Macro Economics steps back to look at the economy-wide totals — the total output of all goods and services produced in a country, the general level of prices, the total level of employment and unemployment, the total supply of money, and the rate at which the whole economy grows over time. Because its central concern is the determination of national income and its distribution across the economy, Macro Economics is often called Income Theory or the Theory of Income and Employment.

The modern subject of Macro Economics took shape largely through the work of John Maynard Keynes, whose 1936 book, The General Theory of Employment, Interest and Money, showed that the economy as a whole could get stuck at a level of output where large numbers of workers were unemployed — a situation that the earlier, micro-based reasoning of the classical economists had assumed could not persist for long. Keynes argued that the total, or AGGREGATE, level of demand in an economy determines how much output firms produce and how many workers they employ, and that governments could act to raise aggregate demand when the economy was operating below its capacity. This 'aggregative' way of thinking — reasoning about economy-wide totals rather than adding up individual decisions one at a time — is the essence of the macroeconomic approach.

Nature of Macro Economics. Macro Economics is aggregative in nature: it works with aggregates (economy-wide totals such as national income) and averages (such as the general price level or the average wage rate), not with the price or output of any single good. It uses the method of 'lumping' — individual quantities are added together into economy-wide totals — in contrast to the 'slicing' method of Micro Economics, which examines the economy one unit at a time. It is also concerned with general equilibrium (the simultaneous balance of the economy's major markets — goods, labour, and money — taken together), rather than the partial equilibrium of a single market studied in isolation.

Scope of Macro Economics. The scope of Macro Economics includes: (i) the theory of national income — how the total output and income of an economy are measured and what determines their level; (ii) the theory of employment — what determines the total level of employment and unemployment, and why involuntary unemployment can arise; (iii) the theory of money — how the supply of and demand for money affect the economy; (iv) the theory of the general price level — what causes inflation (a sustained rise in prices) and deflation (a sustained fall in prices); (v) the theory of economic growth — what makes an economy's productive capacity expand over the long run; and (vi) the theory of international trade and the balance of payments — how the economy interacts with the rest of the world. Together these topics make up the syllabus of Macro Economics studied in this and the chapters that follow.

Tamil Nadu's Higher Secondary Economics syllabus, like every other Indian board's Economics course, builds its macroeconomic theory on exactly these same aggregative principles — the chapters and worked examples differ from state to state, but the underlying macroeconomic ideas taught here are the same principles studied across Indian boards nationally.