What is ‘macroeconomics’?

Macroeconomics zooms way out and looks at the big picture of the economy. How many people have jobs, and what kind of jobs do they have? How quickly is the economy growing, and who is benefiting from that growth? That’s macroeconomics.

In the early 1900s, the field of economics looked a lot like microeconomics does today, with economists studying individuals and businesses and extending that analysis to the whole economy. But when the world economy collapsed in 1929, economists found themselves unable to explain the crash just by looking at individual decision making. If everyone was acting to make their own lives better, how did everything suddenly become so much worse for everyone?

A new approach was needed and macroeconomics was born. One of the key insights of macroeconomics is that adding up individual behavior is not always the best way to understand the big picture. While microeconomics is useful for looking at smaller parts of the economy, macroeconomics starts by looking directly at the big picture.

Macroeconomics studies the stuff you hear about in the news like unemployment, economic growth, international trade, inequality, depressions and recessions. Macroeconomists often work directly on policy issues, trying to determine what different government actions will do to the economy.

One of the biggest macroeconomic policy questions is how governments should respond to economic crises. As you might expect, economists disagree fiercely about this question, and debating it has been one of the central challenges of macroeconomics.