Q.Define Macro Economics. Why is it also called 'Income Theory'?

Macro Economics studies the economy as a whole through its aggregates, and it is called Income Theory because its central concern is what determines national income and its distribution.

Unlike Micro Economics, which focuses on price determination in individual markets, Macro Economics focuses on aggregates such as national income, output and employment — with the determination of national income at its heart.

Macro Economics is the branch of Economics that studies the economy as a WHOLE, rather than the behaviour of any single unit within it. It deals with economy-wide aggregates — the total output of all goods and services (national product), the total income earned by all residents (national income), the total level of employment, the general price level, and the total money supply — and with how these aggregates are determined and how they change over time. Its method is aggregative: it 'lumps' individual quantities into economy-wide totals and studies the general equilibrium of the economy's major markets together.

Macro Economics is also called 'Income Theory' (or the Theory of Income and Employment) because its single most central concern is the determination of NATIONAL INCOME — what fixes the total level of income and output in an economy, why that level can be higher or lower, and how it is distributed. This contrasts directly with Micro Economics, which is called 'Price Theory' because its central concern is the determination of PRICE in individual markets. Since the modern subject, following Keynes, was built around explaining the level of aggregate income and employment, the name 'Income Theory' captures its essence.

Some students define Macro Economics merely as 'the study of big things' or 'the study of the government', which misses the essential point — it is defined by studying economy-wide AGGREGATES (totals and averages), not by the size of the entity or by government involvement.