Relationship between micro economic and macro articles

The Difference Between Micro and Macro Economics

relationship between micro economic and macro articles

The Relationship Between Microeconomics and Macroeconomics Microeconomics is generally the study of individuals and business decisions. The article presents you the difference between micro and macro economics, in both tabular form and points. The first one is microeconomics. Economics is the study of how a society and individuals allocate their scarce resources among unlimited wants to get the most out of their resources. In general.

Macroeconomics focuses on issues that affect the economy as a whole. Some of the most common focuses of macroeconomics include unemployment rates, the gross domestic product of an economy, and the effects of exports and imports. Does this make sense? While both fields of economics often use the same principles and formulas to solve problems, microeconomics is the study of economics at a far smaller scale, while macroeconomics is the study of large-scale economic issues.

Both fields of economics are interdependent At first glance, micro and macro economics might seem completely different from one another. In reality, these two economic fields are remarkably similar, and the issues they study often overlap significantly. For example, a common focus of macroeconomics is inflation and the cost of living for a specific economy.

Inflation is caused by a variety of factors, ranging from low interest rates to expansion of the money supply. Since inflation raises the price of goods, services and commodities, it has serious effects for individuals and businesses. On a microeconomic level, this has several effects.

Difference Between Micro and Macro Economics with Comparison Chart

Businesses are forced to raise their prices in response to the increased cost of materials. They also need to pay their employees more over the long term to account for the higher cost of living.

This is just one example of a macroeconomic phenomenon — in this case, inflation and a rising cost of living — affecting a microeconomic one.

Other macroeconomic decisions, such as the creation of a minimum wage or tariffs for certain goods and materials, have significant microeconomic effects.

What is the Difference Between Micro and Macro Economics?

Do you want to gain a detailed understanding of macroeconomics? There was high unemployment, output was below capacity, and there was a state of disequilibrium.

  • The Difference Between Micro and Macro Economics
  • Difference between microeconomics and macroeconomics
  • Differences Between Micro Economics and Macro Economics

Keynes produced his The General Theory of Employment, Interest and Money; this examined why the depression was lasting so long. It examined why we can be in a state of disequilibrium in the macro economy.

Micro and Macro: The Economic Divide - Back to Basics: Finance & Development

Keynes observed that we could have a negative output gap disequilibrium in the macro-economy for a prolonged time. For example, Irving Fisher examined the role of debt deflation in explaining the great depression. Sincemacroeconomics developed as a separate strand within economics.

relationship between micro economic and macro articles

There have been competing explanations for issues such as inflation, recessions and economic growth. Similarities between microeconomics and macroeconomics Although it is convenient to split up economics into two branches — microeconomics and macroeconomics, it is to some extent an artificial divide.

Micro principles are used in macro economics. If you study the impact of devaluation, you are likely to use same economic principles, such as the elasticity of demand to changes in price.

Micro effects macro economics and vice versa. If we see a rise in oil prices, this will have a significant impact on cost-push inflation. If technology reduces costs, this enables faster economic growth. If house prices rise, this is a micro economic effect for the housing market. But, the housing market is so influential that it could also be considered a macro-economic variable, and will influence monetary policy.

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A truly microeconomic study of a unit would, therefore, enable us to know the behaviour of a particular unit and determine certain magnitudes like the quantum of things it would buy, produce or sell. Thus, it would tell us the position in which the unit would be in equilibrium. The unit of study is the part rather than the whole. For example, microeconomics may explain how single firm decides the sale price of a particular product, what amount of output will maximise its profits, and how it determines the lowest cost combination of labour, capital, materials and other inputs.

It also concerns how the individual consumer determines the distribution of its total expenditure amongst many products and services so as to attain maximum utility.

In its approach microeconomics takes, as given, the total output, employment and spending for all goods and services and proceeds to examine how output and employment are allocated among various individual industries and firms and how the prices of various products of these individual firms are established. It is that branch of economic analysis which studies the behaviour of not one particular unit, but of all the units taken together, like total national income, output and employment, total consumption, saving and investment, aggregate demand and supply and general level of prices.

The idea is to explain ups and downs of these magnitudes and their interrelations. It is done on the basic assumption that not much attention need be given to the constituents of the aggregates, i.

relationship between micro economic and macro articles

In short, macroeconomics attempts to answer the truly big questions of economic life—full employment or unemployment, capacity or under-capacity production, a satisfactory or unsatisfactory rate of growth, inflation or price level stability.

The questions which provide the basis of macroeconomics are: In attempting to answer these questions we shall be considering the theory of employment, the theory of price level and the theory of economic growth. In other words, we shall be examining such aggregates as output, employment, consumption, investment, supply of money, general price level, exports and imports.

Besides, our study will require an appreciation of the role of government in determining the levels of these aggregates and the manner in which it uses its policy instruments for these objectives.