Importance Macro Economics Concept Differences Dr Manish Dadhich

Importance Macro Economics , Concept & Differences Dr. Manish Dadhich

Contents • Aggregates of economic system • Subject-Matter of Micro Economics • Subject-Matter of Macro Economics • Difference between micro & macro • Interdependence of Microeconomics & Macroeconomics • Importance of Macro economics • Importance of Micro economics • Concept of Stock and flow

Aggregates of economic system Aggregates of the economic system refer to macroeconomic variables of the variables which represent the economy as a whole. Some important aggregates are as these: 1. Aggregate demand: total expenditure on the purchase of all goods and services in the economy during the period of an accounting year. 2. Aggregate supply: Total production of goods and services in the economy during the year. 3. Aggregate consumption: consumption of all goods and services in the economy during the period of an accounting year.

4. Aggregate investment: expenditure byall the producers in the economy on the purchase of such goods which add to their stock of capital during the year. 5. domestic income: income generated within the domestic Territory of a country during the year. it also define as production of goods and services in economy during the year. 6. general price level: index of prices of all goods and services at the end of a specified period of time.

Micro economics The prefix 'micro' is derived from Greek word 'mikros', meaning small. “Micro economics studies the economic behaviour of individual economic units and individual economic variables. ” The study of economic behaviour of the households, firms and industries forms the subjectmatter of micro economics.

Micro economics is concerned with economic activities of individual economic units as consumers, resource owners and business firms. It revolves around the interaction of consumers and producers in markets. It explains how these individuals as consumers or households, as resource owners and as producers play their part in the working of the whole economic system.

Subject-Matter of Micro Economics Micro economics is concerned with Product market: Theory of demand Theory of production Theory of cost Factor market: Theory of product pricing Theory of distribution Welfare economics.

Thus, micro economics deals with the Determination of product prices Determination of factor prices and their quantities in the individual markets The allocation of resources among various firms and industries. It deals with the action and interaction of individual markets-product and factor markets.

Macro economics "Macro economics deals not with individual quantities as such but with aggregate of these quantities; not with individual incomes but with national income; not with individual prices but with the price level; not with individual outputs but with the national output. " - Prof. Boulding The prefix 'macro' is derived from the Greek word 'makros' meaning, 'large'. Macro economics is the study of the economy as a whole. Macro economics " deals with the functioning of the economy as a whole. ”

Subject-Matter of Macro Economics Theory of National Income Theory of Output and Employment Theory of General Price Level Theory of Economic Growth Theory of International Trade Theory of Money

Microeconomics Macroeconomics It deals with an individual's economic behavior. It deals with aggregate economic behavior of the people in general. It deals with the pricing of a particular commodity in an industry. It deals with the general price level in the economy, National income accounting, etc. Price is the basic parameter of micro economics. Income is the basic parameter of macro economics. Study of micro economics is important for resource utilization, public finance, and for taking business decisions. Study of macro economics is important formulation of economic policy of the whole nation.

Microeconomics Macroeconomics The concepts of microeconomics are independent concepts. The concept of macro economics are interdependent on one another. The concepts were popularized by the famous Alfred Marshall. The concepts were popularized by the famous Lord J. M. Keynes. These concepts have more theoretical value. These concepts have more practical value. Bottom up view of the economy Top down economy view of the

Interdependence of Microeconomics & Macroeconomics Prof. Paul A. Samuelson has aptly remarked, "There is really no opposition between micro and macro economics. Both are vital. You are less than half-educated if you understand one while being ignorant of the other. " Macro economics deals with 'big' issues of economic life but the entire economy is made up of its parts. Basic goal of both micro economic and macro economic theories is the maximisation of material welfare of the people and the entire economy.

Importance of Micro economics Functio ning of the market econo my Allocati on of resourc es Price determ ination Econo mic efficien cy Helpful in interna tional trade Useful in busines s decisio ns Formul ation of econo mic policy

Importance of Macro economics Understan ding the working of the economy Understan ding the major issues facing the economy Studyof national income Insight into micro economics Useful in formulatin g governme nt's economic policies Internatio nal compariso n

Concept of Stock and flow The concepts of stock and flow are used in more in macro economics or in theory of income, output and employment. Money is a stock variable, whereas the spending the money is a flow variable. Wealth is stock, income is flow, saving by a person within a month is flow, while the total saving on a day is stock. The government debt is stock while the government deficit is a flow and its outstanding loan is a stock.

Some macro variables like imports, exports, wages, income, tax payments, social security benefits and dividends are always flow concept. Such flows do not have direct stocks but they can affect other stocks indirectly, just as imports can affect the stock of capital goods.

Concept of Stock and flow A Stock can change due to flow, but the size of flows can be determined itself by changes in stock. This can be explained by the relation between stock of capital and flow of investment. The stock of capital can only increase with the increase in the flow of investment, or by the difference between the flow of production of new capital goods and consumption of capital goods. On the other hand, the flow of investment itself depends upon the size of capital stock. But the stocks can affect flows only if the time period is so long that the desired change in stock can be brought about. Thus, flows cannot be influenced by changes in stock in the short run

Meaning of stock a stock is a quantity measured at a particular point of time. on January 1 st 2016 there may be 10000 in your bank account and on January 10 2016 there may be 15000 in your bank account. all such value are stock value, If these are measured at a specific point of time. capital and I Quantity of money are suitable example of stock variable. Ex. Wealth Labor force Capital quantity supply of money in a country Bank deposit water in overhead tank distance between Delhi and Mumbai

2. Meaning of flow is a quantity measured over a specific period of time. you may be getting rupees 1000 per month as pocket allowance, you may be spending 20 rupees every day in restaurant. Ex. Income Capital formation change In the supply of money in a country expenditure of money interest on capital leakage of water from overhead tank speed of a car going from Delhi to Mumbai

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