Macro Economics
The term Macro springs from Greek word which suggests large. Macroeconomics looks at the economy as an entire it examines the factors that determine national output and its growth overtime it studies the economic aggregates like the level of prices output and employment within the economy. Within the words of Edward Shapiro, “the major task of macroeconomics is that the simplification of what determines the economy’s aggregate output of goods and services.
It deals with the functioning of the economy as an entire. It does not cater to Individual incomes but with the national income, not with individual prices but with the price level not with individual output, but with national output”. In short, Microeconomics study at the individual units, household, the firm, the industry, it sees and inspect the “trees” Macroeconomics looks at the entire, the economic aggregates it sees and inspect the “forest”.
Main Points in Macro economics
1) Macroeconomics helps in understanding the determination of income and employment within the economy.
2) Macroeconomics helps within the determination of general price level and also the importance of varied factors which influence general price.
3) The macroeconomic models help to formulate economic policies for achieving future economic process with stability.
4) Macroeconomics helps in understanding business cycles, it is terms of macroeconomics that causes of fluctuations within the national income are analyzed, it is also been possible now to formulate policies for controlling business cycles i.e. inflation and deflation.
5) Macroeconomics helps to research the varied aspects of international trade goods and services, imports and exports, balance of payment problems and the effects of exchange rate on the balance of payment etc.
6) Macroeconomics helps us to elucidate the causes of unemployment, stagflation, rate of inflation, economic growth rate within the economy.
7) Macroeconomics helps in understanding the fiscal and monetary policies and their belongings on the performance of the economy.
8) In macroeconomic analysis, it is emphasized that a nation’s economy could be a part of a worldwide financial set-up. A good or weak performance of a nation’s economy can affect the performance of the globe economy as an entire.
Limitations of Macro Economics
1) It is not necessary that each one aggregate variable are important. For instance, national income is that the total of individual incomes. If national income of the country goes up, it is not necessary that the income of all the individuals within the country also will rise. There is a probability that the increase in national income could also be because of the rise within the incomes of some rich families of the country.
2) The macroeconomics analysis regards aggregates as homogeneous but does not investigate its internal composition. For instance, if the wages of the teacher fall and therefore the wages of the doctor rise, the typical wage may remain the same.
3) The macroeconomics ignores the welfare of the single or individual. As an example, if national saving is increased at the price of individual welfare, it is not considered a wise policy.
4) The macroeconomic models are designed mostly to suit the developed countries of the globe. The developing countries faces different economic realities, in order that they do not benefit much from them.
Interdependence of Micro and Macro economics
The microeconomics and macroeconomics are interdependent. We cannot draw any error-free line of separation between microeconomics and macroeconomics. If we study one approach and neglect the opposite, we are considered to be only half educated. We should always integrate both the approaches for the successful analysis of the working of financial system.
Both these approaches help us in inspecting the working of economy. The macro approach should be applied when aggregate entities are involved and micro approach when individual parts of the economy are examined, if we neglect one and lay emphasis on the other, it is going to result in wrong or inadequate conclusions.