Page 10 - DECO402_Macro Economics

Unit-1: Introduction of Macroeconomics

4. Methods of Study: Microeconomics’ theories Formation time we assume that “other things being Notes
equal”. For example, in law of demand we study about, relation between price and quantity
of demand. Other factor affecting demand, as a consumer’s income, his habit, his interest,
price of related goods etc. effects assume constant. This method of study is called Practical
Equilibrium Analysis. Just its contrary in macroeconomics, economic factor are classified in
important aggregates, as a total demand, total supply, total investment etc. interdependence
of these factors is focus of study of macroeconomics. The meaning of this method of study is
called – Quasi General Equilibrium Analysis.
5. Set of Assumptions: Microeconomics and macroeconomics is based on group of various
assumptions. In microeconomics generally it is assumed that in country full employment’s
condition. Total production and total expenditure’s also assumes constant. On the basis
of these assumptions, try to know it that how is optimum allocation of resources and how
various economic units get equilibrium condition. Just its contrary, it is general assumption of
macroeconomics that allocation of resources is optimum. On this assumption, try to know it
that how national resources get full employment.

 Micro –Macro Paradox
That matter is right at individual levels perhaps that is not right for whole economy : For example
(1) If a person saves major part of his income, then such may be beneficial for him, but if whole
society will be saved more than before than its result will be, decrease in total consumption, decrease
in total demand, decrease in total supply and decrease in national income. Similarly more savings
will be descructive for whole society. (2) If a person will draw all his deposit from bank, then it will
no loss to bank; but if all depositors will draw all their deposit from bank, then bank will be failed.
(3) If a labourer accepted to work on low wage then he will got a job, but if all labourer decrease their
wages rate then their income will decreased also. Their total demand will be decreased therefore total
production will decreased also. As a result of this level of employment will decreased rather than
increased. Such a Paradox is expressed the different of microeconomics and macroeconomics.

Prof. Boulding has clarified this difference of macro and micro economics by a tree and an forest
example. According to his a forest is groups of a great many number of trees, similarly an economy
is the combination of many people. The difference between a forest and a tree are as follows – (a) A
tree can be died but forest always exists. (b) There is no tendency of caught fire a tree but wildfire is a
common matter. (c) A single tree has no effect on climate but a forest effects climate. Such a difference
are found in micro and macro economy. Therefore many times it seems that in one economic activity
from individual point and view is changing but an aggregate point and view, stagnation founds in
then. We should not draw conclusion by studying of difference of micro and macroeconomics that
these two are the separate branch of economics, certainly not. In fact, studying of one, get knowledge
of others. This is in fact different methods of studying different economic problems and issues. Many
a time it become compliment to each other. Generally in the light of macroeconomics (as a income,
employment and aggregate demand level) individual producer takes this decision that what and
how much he produces. Similarly, generally in the background of micro level present allocation of
resources, at macro level economy’s future development related plans and projects are made.

Self Assessment

Fill in the blanks:
1. Macroeconomics is related to.......................... on whole programming.
2. Macroeconomics means at wide level whole economy’s.........................
3. Macroeconomics’s relation are from whole economy or its major.............................

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