Apr 30 2012

Seeing the forest through the trees – An intro to Macroeconomics!

At this point in the course, you may find yourself asking, “what is the difference between microeconomics and macroeconomics?” It has been a long time since we first defined these terms at the beginning of the course. The purpose of this post is to introduce some basic Macro concepts help clear up the confusing and not so obvious differences between these two areas of economics.

A teacher of mine once explained the difference between micro and macro using the example of a tree and a forest. Microeconomics is the like the study of an individual tree, standing in a thick forest of thousands of individual trees of different species. A microeconomist might study the systems that make an individual tree function efficiently, providing it with the sustanence it needs to thrive in the forest. A macroeconomist, however, will take a broader look at the forest as a whole, and observe how the thousands of trees work together in conjunction with the sun, the soil, the oxygen, nitrogen, and H2O in the environment that make the entire forest function efficiently as one giant organism.

Put literally, the tree is like an individual market. This may be a product market like the market for apples, or a resource market like the market for apple pickers. Microeconomists will study the characteristics of an individual market: the firms and their costs, tradeoffs, challenges presented by competition or the inefficiencies that result from a lack thereof, and the buyers in the market: the alternatives and trade-offs they face, the utility they receive and the decisions they make based on these factors. Microeconomics concerns itself not with the health of the economy as a whole, rather with the individual markets, firms, and consumers within the economy, and the challenges of efficiency and resource allocation faced by those markets.

Macroeconomics, on the other hand, studies the health of the economy as a whole. Macro deals with aggregates, or “collections of specific economic units treated as if they were one. ” For example, instead of studying price of a product, as a microeconomist would, a macroeconomist looks at the price level in the whole economy. Whereas a microeconomist looks at supply and demand in a particular market, a macroeconomist studies aggregate supply and aggregate demand, assessing the collective marginal benefit of all consumers and marginal costs of all producers. Instead of quantity supplied, the macroeconomist examines aggregate output, or gross domestic product. Instead of underallocation and overallocation of resources, the macroeconomists concerns himself with unemployment and inflation.

When it comes to the role of government, macroeconomics has a lot more to say about the role a central government should play in managing the economy as a whole. One major theme of microeconomics is that competitive markets, when left alone by government, tend to achieve efficient allocations of resources. You’ll find that in Macro, however, the government often plays a central part in stimulating and slowing down the level of economic activity in the economy, using tools such as fiscal and monetary policy.

Also in macroeconomics, we’ll study in more depth the role that comparative advantage plays in the economic exchanges that take place between nations. International trade also involves the exchange of foreign currencies, which we’ll try to understand by studying exchange rates and the role that governments play in manipulating and controlling the values of their currencies.

Macroeconomics will prove to be particularly relevant to the events going on in the recent turbulent global economy.  If have listened to the news lately you’ve heard world leaders, political pundits and commentators from all political and economic leanings use words like “bailout”, “fiscal stimulus”, “monetary easing”, “deficit spending” and others; all concepts having to do with macroeconomics. In the next few months, you will begin to see the forest through the trees as we take on the exciting  and challenging field of macroeconomics.

Assignment: Using your economics text and the Economic Dictionary at Econclassroom.com, complete the table below.

  • On the left are microeconomics concepts you have already studied as part of the course. Each of these  concepts needs to be defined or explained. 
  • In the right column are the macro concept that corresponds with each of the micro concepts. Each of these terms or concepts needs to be defined and/or explained. 
Definitions and explanations can be entered into the spreadsheets linked below: (my students: you must be logged in to your school Google Docs account to edit this document!)


About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

61 responses so far

61 Responses to “Seeing the forest through the trees – An intro to Macroeconomics!”

  1. Katie Luon 10 Mar 2014 at 4:59 am

    Micro ConceptMacro Equivalent//nMarketNational economy//nDemand Aggregate demand//nSupplyAggregate supply//nPrice Price level//nQuantityGDP (gross domestic product)//nDecrease in demandUnemployment //nIncrease in demandInflation//nDecrease in supplyDecrease in aggregate supply//nIncrease in supplyIncrease in aggregate supply//nExcise (indirect) tax Taxation//nSubsidyGovernment spending//n

  2. Sine Nilsenon 10 Mar 2014 at 6:21 am

    Microeconomic ConceptMacroeconomic Equivalent
    MarketNational economy
    DemandAggregate demand
    SupplyAggregate supply
    PricePrice level
    QuantityAggregate output or gross domestic product
    Decrease in demandUnemployment
    Increase in demandInflation
    Decrease in supplyDecrease in aggregate supply
    Increase in supplyIncrease in aggregate supply
    Excise (indirect) taxTaxation
    SubsidySpending

  3. Fernando Cesaroneon 10 Mar 2014 at 8:11 am

    Market-Economy
    Demand-Agreggate Demand
    Supply-Agreggate Supply
    Price- Price Level
    Quantity-National Output
    Decrease in Demand-Decrease in Aggregate Demand
    Increase in Demand-incerease in Aggregate Demand
    Decrease in Supply-Decrease in Aggregate Supply
    Increase in Supply- Increase in Aggregate Supply
    Excise (indirect) tax- Tax
    Subsidy-Government Spending

  4. Niclas Ingvarssonon 10 Mar 2014 at 8:36 am

    Market- Economy
    Demand- Aggregate Demand
    Supply- Aggregate Supply
    Price- Price Level
    Quantity- GDP (National Output)
    Decrease in demand- Unemployment (Decrease in Aggregate Demand)
    Increase in demand- Inflation (Increase in Aggregate Demand)
    Decrease in supply- Decrease in aggregate supply
    Increase in supply- Economic Growth (Increase in Aggregate Supply)
    Excise (indirect) tax- Taxation
    Subsidy- Government Spending

  5. Patrick Smithon 10 Mar 2014 at 8:44 am

    Market-Economy
    Demand- Aggregate Demand
    Supply -Aggreggate Supply
    Price- Price Level
    Quantity-National Output
    Decrease in Demand-Decrease in Aggregate Demand
    Increase in Demand-incerease in Aggregate Demand
    Decrease in Supply-Decrease in Aggregate Supply
    Increase in Supply- Increase in Aggregate Supply
    Excise/indirect tax- Tax
    Subsidy-Government Spending

  6. Angela Lon 11 Mar 2014 at 6:36 am

    Micro Concept – Macro Equivalent
    Market – Economy
    Demand – Aggregate demand
    Supply – Aggregate supply
    Price – Price level
    Quantity – Gross domestic product
    Decrease in demand – Unemployment
    Increase in demand – Inflation
    Decrease in supply – Decrease in aggregate supply
    Increase in supply – Economic growth
    Excise (indirect) tax – Taxation
    Subsidy – Government spending/expenditure

  7. berkedaglion 11 Mar 2014 at 12:58 pm

    Micro ConceptMacro Equivalent
    Market economy
    Demand Aggregate demand
    Supply Aggregate supply
    Price Price per level
    Quantity National output or quantity
    Decrease in demand Unemployment and bankruptucy
    Increase in demandInflation
    Decrease in supply profits
    Increase in supply Economic growth
    Excise (indirect) tax Tax
    Subsidy Government spending

  8. Akashon 11 Mar 2014 at 4:21 pm

    Market-Economy
    Demand-Agreggate Demand
    Supply-Agreggate Supply
    Price- Price Level
    Quantity- Output (national)
    Decrease in Demand-Decrease in Aggregate Demand
    Increase in Demand-incerease in Aggregate Demand
    Decrease in Supply-Decrease in Aggregate Supply
    Increase in Supply- Increase in Aggregate Supply
    Excise (indirect) tax- Tax
    Subsidy-Government Spending

  9. Zuzannaon 15 Mar 2014 at 4:20 pm

    Micro-Macro concepts:

    Market – Economy
    Demand- Aggregate demand
    Supply -Aggregate supply
    Price – Price level
    Quantity – Gross Domestic Product (GDP)
    Decrease in demand – unemployment; recession (decrease in aggregate demand)
    Increase in demand – inflation (increase in aggregate demand)
    Decrease in supply – decrease in aggregate supply
    Increase in Supply- Increase in aggregate supply
    Excise (indirect tax) – Taxation
    Subsidy – Government spending

  10. @alekseib17on 25 Mar 2014 at 10:32 pm

    Micro ConceptMacro Equivalent
    Market Economy
    Demand Aggregate Demand
    Supply Aggregate supply
    Price Price level
    Quantity Gross domestic product
    Decrease in demand Unemployment
    Increase in demand Inflation
    Decrease in supply Decrease in aggregate supply
    Increase in supply Economic growth
    Excise (indirect) tax Taxation
    Subsidy Government spending

  11. audit grossetoon 08 Apr 2015 at 9:14 am

    audit grosseto

    Seeing the forest through the trees – An intro to Macroeconomics! | Economics in Plain English