MacroeconomicsI_working_version (1)

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Chapter 1
1.2. Macroeconomics vs. Microeconomics
Microeconomics and macroeconomics are closely related sciences. Good economists must
understand both of them so that they could comprehend and examine all the relations and
channels in a whole economy. Lets used few widely accepted definitions 1 :
Macroeconomics examines either the economy as a whole or its basic subdivisions or
aggregates such as the government, household and business sectors. An aggregate is a
collection of specific economic units. Therefore, we might lump together the millions of
consumers in the economy and threat them as if they were one huge unit called
“consumers”.
In using aggregates, macroeconomics seeks to obtain an overview of the economy and the
relationship of its major aggregates. Macroeconomics speaks of such economic measures
as total output, total employment, total income, aggregate expenditures, and general
level of prices in analysing various economic problems. Macroeconomics examines the
forest, not the trees.
Microeconomics looks at specific economic units. At this level of analysis, the
economists observe the details of an economic unit, or a very small segment of the
economy, under the figurative microscope. In microeconomics we talk of an individual
industry, firm or household. We measure the price of a specific product, of a number of
workers employed by a single firm, the revenue or income of a particular firm or
household, or the expenditures of a specific firm, government, entity, or a family. In
microeconomics we examine the trees, not the forest.
Macroeconomics looks at the economy as a whole or its major aggregates;
microeconomics examines specific economic units or institutions.
1.3. Positive vs. Normative Economics
Microeconomics and macroeconomics, both, work with facts, theories, and policies. The
way of examining the economy, used method and goals depend upon economist’s way of
looking at things. From this point of view we can distinguish between positive economics
and normative economics.
Positive economics evades value statements related to economic behaviour. It concentrates
on facts. What the economy is actually like - this is what positive economics deals with.
Positive economics work with factually based analysis and avoid the policy analysis
evaluation.
On the contrary, normative economics include value judgements about what the economy
should be like. It also involves the recommendations of some particular policy actions,
1 McConnell-Brue [10], Dornbush-Fisher-Starz [7]; There are also many others definitions in other economic
textbooks. See the list of literature in the end of the textbook.