Economics: Comparison Between Micro And Macroeconomics

I. Definition of Macroeconomics

Ragnar Frisch, a Norwegian economist coined and used the term microeconomics and macroeconomics in 1933. Micro and macro were derived from Greek words micros meaning small and macros meaning large.

Economists Rudiger Dornbusch, Stanley Fischer state that “ Macroeconomics is concerned with the behavior of the economy as a whole – with booms and recessions, the economy’s total output of goods and services and the growth of output, the rates of inflation and unemployment, the balance of payments and exchange rate. Macroeconomics deals with long run economic growth and with short run fluctuations that constitute the business cycle.”

II. Comparison between Microeconomics and Macroeconomics

Microeconomics is the

It helps us to understand and analyze the performance of an economy.

• Macroeconomics is a great help in the development of economic theories and formulation of economic policies geared towards economic growth.

• It is helpful in the computation of the national income and analysis of the problems relating to national income like inflation, deflation and unemployment.

• Guides in the study of general level of taxation and public expenditure.

• Macroeconomics provides necessary information in comparing economies of different countries.

III. Circular Flow and National

Circular Flow in a Five-Sector Economy

V. Business Cycle

The business cycle is the four phases of economic growth and subsequent decline. It is also called as the economic cycle and the boom and bust. Business cycle is also termed as “trade cycle” by some economists like John Maynard Keynes in his Treatise on Money defining that a trade cycle is composed of periods of goods trade characterized by rising prices and low unemployment percentages, altering with periods of bad trade characterized by falling prices and high unemployment percentages.

Another economist, Robert Aaron Gordon in his book Business Fluctuations” stated that “Business cycles consist of recurring alternation of expansion and contraction in aggregate economic activity, the alternating movements in each direction being self-reinforcing and pervading virtually all parts of the economy”.

A. Phases of Business Cycle

Normally the business cycle is divided into four phases as shown below:

A business cycle starts from the trough, a period in which there is little economic activity and prices are usually low, passes through recovery and prosperity phase rises to a peak, decline through a recession and depression phases and again reaches a trough.

Recovery