macroeconomics look into all the different aspects of the national economy. It examines the character of the national economy, its history and development, how it factors into the international economic activity, what effects it has on other countries, the ways in which it influences the individuals in the country, and what kind of impact it has on the macroeconomic framework. Microeconomics deals only with micro aspects of the macroeconomy. For instance, micro economics looks at the production, consumption, investment, distribution, availability and price structure of micro aspects of the macro economy.
As we have seen above, macro economics looks at the big picture, whereas micro economics looks into the minutiae of the small. For instance, micro economics looks into the production, availability, distribution, allocation, price level and consumption of a product. On the other hand, macro economics looks into all these aspects individually. For instance, a micro-economic analysis would look into how production is distributed, how production is allocated, how the distribution is distributed, how the allocation is driven by macro-economic considerations such as demand and supply. A macro economic analysis would study how the output from one area affects output in another area.
Micro-economic analysis looks into minute details. For example, in micro-economic analysis, we cannot analyze how output is allocated across firms, but only within a firm. We can say that firm B produces some B1 material and sells B2 material to firm A. Firm A then purchases B1 and produces it in its factory. Firm A sells the resulting product to market. Thus, micro-economic analysis focuses on the market distribution aspects of production.
A good macro economics course should not just be a set of abstract economic theory. In particular, the macro economic principles that are demonstrated in the course should guide economic policies that a nation pursues. The best known of these principles are the fundamental laws of supply and demand. Here are three of the most important: the theory of demand, the theory of substitution, and the theory of money velocity.
The theory of demand implies that there is a natural tendency for the price level to increase with increased production. It also implies that there is a natural tendency for real GDP growth to be equal to the elasticity of demand. This means that, over the period of a macroeconomic cycle, when output exceeds demand (and, correspondingly, prices), the economy will automatically generate an excess of saved cash (an excess of savings) above the amount spent (a surplus of investment).
The theory of substitution suggests that people will purchase more goods when their income has risen than when it falls. Put another way, people are saving more money to spend will reduce the need for unemployment benefits and other fiscal stimulus programs. In short, the theory of substitution suggests that the employment level should rise above the unemployment rate so as to absorb the extra dollars generated by increased demand. The third macro economics concept is the theory of money velocity.
Money velocity is the tendency of a monetary unit to change in relation to other monetary units. In the case of the economy, a particular money unit may become more urgent (or not urgent at all) as time goes by because of the general movement of macroeconomic indicators (such as price level or general economic growth). The general movement of the price level reflects the degree of competitiveness of the domestic market and the quality of the domestic money supply.
