MEANING
AND DEFINITION OF MACRO ECONOMICS
The
term, 'macro' has been derived from the Greek word 'Macros' which means large.
Thus, macro economics is the study and analysis of the economy as a whole. Macro
economics studies the behaviour of whole economic system in totality. The term
macro economics has been defined as under:
"Macro economics concerns itself
with such variables as the aggregate volume of the output of an economy, with
the extent to which its resources are employed, with the size of national
income, with the general price level."
Prof. Gardner Ackley
"Macro economics deals not with
individual quantities as such but with the aggregates of these quantities, not
with individual incomes but with national income, not with individual prices
but with price level; not with individual outputs but with national output.”
-K.E. Boulding
Thus,
it may be concluded that macro economics is the study of the behaviour of large
aggregate such as total employment, national product, national income, general
price level of the country etc. It deals with the problems of unemployment,
inflation, deflation, international trade, economic growth.
SCOPE OF MACROECONOMICS
Macro
economics deals with the economy as a whole. It deals with national income,
national output, national expenditure, level of savings and investments, level
of employment etc. The scope of macro economics can be illustrated with the
help of following diagram:
IMAGE.
CHARACTERISTICS
OF MACRO ECONOMICS
1. A Study of Aggregates: Macro economics is a study of economic aggregates. It does
not study individual income, individual output or individual price. It studies
national income, national output, general price level etc.
2. Ignorance of Individual Differences: Macro economics does not consider individual
differences of national aggregates.
For Example- It studies general
price level, but does not consider the price of individual commodities.
3. Theory of Economic Growth: Macro economics studies the problems of economic growth and
also the theories of economic growth.
IMPORTANCE
OF MACRO ECONOMICS
1. Helpful in Understanding the Working of Whole Economy: Macro economics is helpful in
understanding the working of whole economy. It studies theory of international trade, theory of economic
development, theory of employment, theory of national product and national
income, theory of foreign exchange etc.
2. Helpful in the Formulation of Economic Policies: Economic policies of government are
formulation keeping in view the Whole economy the individual economic units.
3. Helpful in the Study of Growth and Development: Macro economics helps in analyzing
the effect of development programmes on national income, employment and investment
etc.
4. Helpful in the Development of Micro Economics: Macro economics is helpful in the
testing and development of laws and theories established in micro economics.
LIMITATION
OF MACRO ECONOMICS
1. Excessive Generalization Creates Economic Paradoxes: Results of macro economics do not
hold true on individuals. It creates the problem of economic paradoxes.
Example- An individual starts to
withdraw his deposits from banks, the banks will not fail but if all the
individual start to withdraw their deposits from banks, the banks may fail.
2. It Ignores Difference Within Aggregates: Macro economic analysis assumes that
there is no difference within the constituents of an aggregate.
3. Problem of Hetrogeneous Groups: In an economy, many groups are hetrogeneous and the results
drawn in respect of such groups are not very reliable.
4. Impracticability: The models developed by macro economic analysis are of least importance
in the formation of economic policies.
DISTINCTION BETWEEN MICRO ECONOMICS AND MACRO ECONOMICS:
|
S.No |
Basis of Difference |
Micro Economics |
Macro Economics |
|
1. |
Meaning |
Micro economics is a study of individual unit of an economy. |
Macro economics is the study of the aggregate covering the whole
economy. |
|
2. |
Field of study |
Micro economics studies individual economic unit such as individual
consumer, a household, a firm, a industry, a commodity etc. |
Macro economics is the study national aggregates such as national
income, national output general price level, level of saving and investment,
level of employment etc |
|
3 |
Deal with |
Micro economics deal with determination of price of a commodity, a
factor of production, satisfaction of consumer etc. |
Macro economics deal with the problem of unemployment , trade cycles,
international trade, economics growth etc. |
|
4. |
Tools |
Demand and supply of a particular commodity. |
Aggregates demand and supply
of whole economy |
|
5. |
Assumption |
It assumed that all macro economics variable are constant. |
It assumed that all micro economics variable are constant. |
|
6. |
Concerned with |
·
Theory of product pricing ·
Theory of factor pricing ·
Theory of economic welfare |
·
Theory of national income ·
Aggregate consumption ·
Theory of general price level |
|
7. |
Basis parameters |
Price |
Income |
|
8. |
Other name |
It is also known as Price theory. |
It is also known as Income and Employment theory. |
|
9 |
Application |
It applied in operational and internal issues. |
It applies in environment and external issues. |
