Macroeconomics is a concept extensively used in economic literature. However, despite its ubiquity and popularity, it is not uncommon to observe its misuse resulting from incomplete understanding. The following paper provides an extended definition of macroeconomics by contrasting it with a related concept of microeconomics.
Macroeconomics is a branch of economics that deals with the behavior, performance, and structure of large economic systems (Mankiw, 2015). The discipline focuses on the analysis of global economic issues and the mechanisms and principles that determine the observed behaviors and trends to be able to model the future course of action and predict the likely outcome. The factors employed in such analysis are gross national product, consumption, levels of income, and employment of large groups of individuals (e.g. a country’s population), international trade, and growth rates (Heijdra, 2017). Macroeconomics is commonly used to obtain information relevant to long-term strategic planning by large entities such as governments and multinational corporations.
The most intuitive way to define macroeconomics is by contrasting it with microeconomics. While both subsets of a discipline utilize related factors for the analysis, the scope and magnitude of these factors differ immensely. For instance, unemployment is an encompassing issue that inevitably affects the economic performance of individual organizations as well as countries and geopolitical regions. The microeconomics perspective would require focusing on its effects on the performance of an individual company (e.g. its ability to hire employees in a specific setting and with a defined set of characteristics. The macroeconomics perspective, on the other hand, would require viewing the issue in terms of global or national unemployment rates, and determine the likely causes and outcomes of the phenomenon. In this case, microeconomics would require information obtained by macroeconomic analysis to estimate the supply of employees available in each case. Essentially, macroeconomics maintains a strategic perspective by including the factors that may not be apparent from an individual company’s standpoint whereas microeconomics incorporates these factors and adjusts them to better represent their case and arrive at a more accurate conclusion.
It should also be understood that the precision of models offered by both disciplines is significantly different. Macroeconomics deals with large populations and aggregates the data on consumption, investment, and international trade to obtain a large-scale view. Such aggregation requires a certain amount of generalization and, as a result, compromises the accuracy of the findings (Arnold, 2016). However, the result of such analysis provides sufficient data to understand the general principles of global phenomena and estimate the likely direction in will take in the long term. In contrast, microeconomics uses this information to conduct a more focused inquiry which would also incorporate several factors relevant to a specific group, organization, or setting (Tucker, 2017). While such findings are more valuable for individual companies, they can rarely be applied to a global context and offer little to no value in unrelated areas.
At this point, it should be understood that macroeconomics is not a separate discipline, but rather a subset of economics that is meant to be used in combination with microeconomics. The global scope of its inquiry provides the necessary context for the analysis by determining the relationship between numerous factors such as inflation, national income, consumption, and international trade. This data is then used to forecast the expected behavior of individual players in the field, including companies and consumer groups. Thus, macroeconomic data provides the necessary background for microeconomic analysis to yield more inclusive results.
References
Arnold, R. A. (2016). Macroeconomics (12th ed.). Boston, MA: Cengage Learning.
Heijdra, B. J. (2017). Foundations of modern macroeconomics (3rd ed.). New York, NY: Oxford university press.
Mankiw, N. G. (2015). Principles of macroeconomics (7th ed.). Stamford, CT: Cengage Learning.
Tucker, I. B. (2017). Macroeconomics for today (9th ed.). Boston, MA: Cengage Learning.