Macro Economics

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Q1. Define micro and macro economics, Distinguish between them, and explain the scope, importance and its limitations Ans. modern economy analysis has been divided into two major branches that is micro and macro economics. Micro economics means the economics system which deals individual economics unit on the other hand macro economics means the economics unit which deals aggregate as a whole that is national income, general employment, and total out –put, general price level etc. These two concepts first time used by PROF.R.FRISCH of Oslo university in 1933. But ,later on these two concepts systematically explained by J.M.Keynes in his famous book “General theory of employment,interst and money”. Distinguish between micro and macro economics:

The distinction between micro & macro economics is not very clear cut because what is micro-economics in situation or from one point of view may become macro-economics in another point of view. For example: in the case of a closed economy a study of income, saving, consumption , employment etc are macro economics on the other hand in case of open economy all these are micro-economics. If we go through its basic meaning then following are the important differences between them: Micro-economics Macro-economics It studies the individual-unit| It studies total economics systems| It explains the price theory| It explains the income & employment theory| It is a static concept| It is dynamic one|

It deals with partial eqm| It deals with general eqm|
It assumes full-employment| It assume less then full-employment| It assumes general-price level given| It assumes relative price given| It deals with allocation of resources| It deals with optimum utilization of total resources|

Scope and importance of macro economics:
Prof. J.K.Mehta feels that so long as men live in society, the economist cannot afford to neglect the study of macro economy. The theoretical and practical importance can be clear from the following points: a) Formulation of economics policies

b) Understanding micro economy
c) Functioning of an economy system
d) Understating and controlling economic fluctuations
e) Study of economic development
f) Inflation and deflation
g) Study of national income
h) Performance of an economy
i) Nature of material welfare

a) Formulation of economics policies: it helps in the formulation of economic policies. Such as monetary and fiscal policies during the inflationary and deflationary situation to solve the problems of rise in prices, unemployment, depressions etc. b) Understating micro economy: the study of macro – economics is essential for proper understating of micro-economics. Without macro-economic no micro-economic law are studied. For example the theory of individual firm could not have been formulated without reference to behavior pattern of general industries. So macro-economic is treated as jungle and micro-economic as tree. c) Functioning of an economy: it is utmost important in getting us an idea of the functioning of an economy system. It is very essential for a proper and accurate knowledge of the behavior pattern of the aggregate variables. Without macro economics we are not been able to know what type of economy system is there i.e. socialism, capitalism, or mixed economy. d) Understating and controlling economics fluctuation: the theory of economics fluctuations can be understood and built up only with the help of macro economics, for here , we have to take into aggregate consumption, aggregate saving and investment in the economy. e) Study of economic development: as a result of advanced study in macro economics, it has become possible to give more attention to the problem of development of underdeveloped countries. The main aim of macro economy is to promote economic welfare. f) Inflation and deflation:...
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