• November 29, 2021

Introduction to macroeconomics: nature and scope

Q1: What is microeconomics? Highlight its meaning and limitations.

YEARS: * INTRODUCTION: –

– Economics is the study of the allocation of scarce resources between competing purposes that have alternative uses.

– The economy is broadly divided into two parts:

^ Microeconomics.

^ Macroeconomics

– Macroeconomics is the branch of economic analysis that studies the behavior of aggregates, that is, of all units combined.

* SENSE: –

– Macroeconomics is the study of aggregates that cover the entire economy. Thus, macroeconomics is related to the study of aggregates such as total employment, total production, total consumption, total saving, total investment, national income, aggregate demand, aggregate supply, the general price level, etc.

– Since macroeconomics deals with aggregates, it is also known as income and employment theory or income analysis.

*NATURE:-

– Macroeconomics studies the aggregates of the entire economy. The nature of macroeconomics can be understood with the help of the following aspects:

i) DETERMINATION OF NATIONAL INCOME AND EMPLOYMENT:

– Macroeconomics deals with aggregate demand and aggregate supply that determines the equilibrium level of income and employment in the economy.

– The level of aggregate demand determines the level of income and employment.

– Macroeconomics also deals with the problem of unemployment due to lack of aggregate demand. Also, study economic fluctuations and business cycles.

ii) DETERMINATION OF THE GENERAL PRICE LEVEL:

– Macroeconomics studies the general level of prices in an economy.

– It also studies the problem of inflation and deflation.

iii) ECONOMIC GROWTH AND DEVELOPMENT:

– Macroeconomics deals with economic growth and development.

– Study various factors that contribute to economic growth and development.

vi) DISTRIBUTION OF PRODUCTION FACTORS:

– Macroeconomics also deals with various factors of production and their relative share in total production or total national income.

* SCOPE AND MEANING:

– Macroeconomics occupies a significant place in economic analysis and is of great theoretical and practical importance.

– The importance of macroeconomics can be understood from the following points:

i) POLICY FORMULATION:

– Macroeconomics plays a very important role in the formulation of economic policies. Given that government intervention in economic affairs is fundamental in the current economic scenario, knowledge of the aggregates is of great importance in the framework as well as in the implementation of the nation’s economic policies.

ii) BASIS OF THE MICRO STUDY:

– Macroeconomics provides the basis for microeconomic analysis, since the study of aggregates helps to understand and verify the behavior of individual units.

iii) MULTIDIMENSIONAL STUDY:

– Macroeconomics has a very broad scope and covers multidimensional aspects such as population, employment, income, production, distribution, consumption, inflation, etc.

– This is very useful to control the fluctuations of these factors.

vi) NATIONAL INCOME:

– Macroeconomics studies the accounting of national income, which helps to understand the distribution of income between different groups of people. It is also essential for forecasting the level of economic activity.

v) SPECIAL GROWTH MODELS:

– Macroeconomics has been useful in developing special growth models. These growth models apply to economic development because the economics of growth is, in essence, the study of macroeconomics.

vi) MONETARY PROBLEMS:

– Macroeconomics is especially important in the study of monetary problems that negatively affect the economy.

– In fact, macroeconomics focuses on the problems of inflation and deflation and their solution through the adoption of monetary, fiscal and direct control measures.

*LIMITATION:

– Although macroeconomics is fundamental in economic analysis and has great practical and theoretical importance, it suffers from certain drawbacks or limitations. These are:

i) UNREALISTIC ASSUMPTIONS:

– Macroeconomics assumes that the aggregates are homogeneous. However, such an assumption is not realistic.

ii) GENERAL ECONOMIC WELFARE:

– Macroeconomics deals with general well-being and does not take into account individual-level well-being, although individual well-being forms an important part of economic study.

*CONCLUSION:

– Despite its limitations, macroeconomics is of great practical importance and is widely used.

– Provides practical solution to economic problems.

– It is complementary to microeconomics and the study of both is vital for a correct analysis of economic problems.

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