SummaryIn this Learning Path, we learn the basic concepts needed to start studying any country’s economy. Even though the analysis should start by assuming either a closed or open economy, this LP omits such concepts, and gives just the very basic notions required to study macroeconomics.
Macroeconomics is the study of the economy as a whole, by means of aggregate variables, this is, the part of economic theory that studies the behaviour of economic agents in large aggregates of demand and supply, monetary aggregates, gross domestic product, etc. Macroeconomics therefore relate to the concepts of the national economy that are measured through national accounting, input-output models, etc. During the 30s, J.M. Keynes, promoted the study of this matters with his concepts of aggregate demand, full employment and so on.
In contrast to microeconomics, macroeconomics seeks the “large picture”, showing the operations of the economy as a whole, rather than its internal diversity. In fact, it regards the economy as producing a single and unique good. Its purpose is to obtain the least complex vision of the economy’s functioning, but in such a way that it also, allows the analysis of the level of economic activity.
We can use Engel’s Law to show the close relations between micro and macro concepts and how one can have profound implications in the other. Ernst Engel analysed Belgian working class families’ consumption patterns and related their levels of income with their expenditure on food and other goods. He discovered that the higher the income of the family, the lower the share of food in comparison to other expenses. This analysis would become the central statement of his law. As Engel already realized, this had huge consequences in the economic development. Agriculture production, which relies heavily on food consumption, as this is its main product, will see a decline regarding its share of the aggregate total production, as the share for food decreases in aggregate terms as the economy grows. From this concept, we can extract that growth of all sectors at the same rate is impossible, and we also find the close relation between micro and macro concepts.