Macro and Micro Economics
After the Great Depression (during the 1930s) the domain of economics got divided into two
broad branches—the micro- and macro-economics. John Maynard Keynes is considered the
father of macroeconomics (the branch came into being after the publication of his seminal work,
The General Theory of Employment, Interest and Money, in 1936).
Simply put, if macroeconomics (macro) is about the forest, microeconomics (micro) is about
the trees. While the former deals with the big picture (the forest) the latter deals with the details
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(the trees) that make up the forest. Micro and macro are the Greek words which mean ‘small’
and ‘big’, respectively.
While micro takes a bottoms-up approach to analyse economy, macro takes a top-down
approach. Taking an example, while micro tries to understand the choices which consumers
make and the income they earn, macro tries to understand the dynamics of inflation and growth.
Though, they appear to be different, they are actually interdependent and complementary since
there are many overlapping issues between them. For example, a rise in inflation (macro effect)
will cause rise in the cost of raw materials leading to rise in prices which consumers will pay
(micro effect).
Micro theory evolved from the theories of how prices are determined, macro, on the other
hand, is rooted in empirical observations that existing theory could not explain. While there are
no competing schools of thought in micro, macro has schools like New Keynesian or New
Classical. Since the late 1980s rather these divisions have been narrowing
Econometrics is the third core area of economics other than the micro and macro. This field
seeks to apply statistical and mathematical methods to economic analysis. The sophisticated
analyses of micro and macro sub-fields would not have been possible without the major
advances made in econometrics over the past century or so.
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