Macroeconomics Concepts: An Overview

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.