ABSTRACT
The terms micro-theory and macro-theory are so widely used among economists that one should think it is clear what they mean. Since the Greek words micro and macro mean in English “small” and “large,” one would expect macro-theory to refer to a large model, and one would assume that a macro-model would be composed of micro-models and have micro-models as elements of its structure. In order to distinguish different ways of looking at the economy, teachers have sometimes resorted to analogies, and have compared micro-economics to a view through a microscope and macro-economics to a view through a telescope. Micro-theory deals chiefly with the choices and decisions of the individuals who manage households or firms. Macro-theory is chiefly concerned with the mode of behavior of groups of economic units with respect to cer-(assumed or estimated) aggregate economic quantities.
