Interdependence between microeconomic and macroeconomic

Strictly speaking the theory of the rate of interest has now become a subject of macroeconomic theory. The theory of relative prices of products and factors is essential in the explanation of the determination of general price level. On the other hand, when aggregate demands, incomes of the people, the general price level go up and conditions of boom prevail, the entrepreneurs earn huge profits.

Microeconomics also depends upon to some extent on macroeconomics. It is thus Interdependence between microeconomic and macroeconomic from above that the Interdependence between microeconomic and macroeconomic of profits and rate of interest cannot be explained without the tools and concepts of macroeconomics.

If we discover, for example, empirically stable macroeconomic generalisations which appear inconsistent with microeconomic theories, or which relate to aspects of behaviour which microeconomics has neglected, macroeconomics may permit us to improve our understanding of individual behaviour. Strictly speaking theory of the rate of interest has now become a subject of macroeconomic theory.

However, when the resources in the economy are not fully employed, the question of optimal allocation of resources is not of much importance. This gets very complex because 'relatively go up' or 'relatively go down' are very loose relationships and many factors impact decision making also i.

According the Keynes when as a result of the increase in money supply and consequently the aggregate demand, more output is produced, the cost of production rises.

Microeconomics is dependent on macroeconomics. The opportunity cost of producing additional output of any kind is almost zero. Moreover, we can derive the behaviour of these aggregates only if either the composition of aggregates is constant or the composition changes in some regular way as the size of aggregates changes.

Moreover, we can derive the behaviour of these aggregates only if either the composition of aggregates is constant or the composition changes in some regular way as the size of aggregates changes.

If interest rates goes up: According to this theory an individual entrepreneur in his investment activity is governed by the expected rate of profit on the one hand and rate of interest on the other. The liquidity preference function and the stock of money in the economy are macroeconomic concepts.

No doubt, the Keynesian theory has also been shown to be indeterminate, but in the modern theory of interest Keynesian aggregative concepts of liquidity preference and stock of money play an important role in the determination of the rate of interest.

Interdependence between Micro and Macro Economics

Even Keynes used microeconomic theory to explain the rise in the general price level as a result of the increase in the cost of production in the economy. We know that at times of depression when the levels of aggregate demand, national income and price level are low, the entrepreneurs in the various fields of the economy suffer losses.

So, they both are interdependent. In such a scenario, there is a scarcity of resources and thus there is an opportunity cost of using resources in certain lines of production and not in others. In theory, macroeconomics can be easy because for each change in a relevant figure it can be assumed that if all other factors are constant, this is what would happen.

Macroeconomics is dependent on microeconomics. People may save more money as they get a better return on their deposits. Being two broad branches of economics, each is paralyzed in the absence of other.

Variables of each other are interdependent, therefore as we analyse micro economic variables,we have to take account of macroeconomic variables that may affect the micro economic variables and vice versa. Not only does macroeconomics depend upon to some extent on microeconomics, the latter also depends upon to some extent on macroeconomics.

Moreover, we can derive the behaviour of these aggregates only if either the composition of aggregates is constant or the composition changes in some regular way as the size of aggregates changes.

Interdependence between microeconomic and macroeconomic microeconomic theory, the profits are regarded as reward for uncertainty bearing but microeconomic theory fails to show the economic forces which determine the magnitude of profits earned by the entrepreneur and why there are fluctuations in them.

United States Related Discussions: Also, microeconomics takes the general price level as given, whereas it is a variable which has to be explained in macroeconomics; the relative prices are assumed to be given in macroeconomics but is a variable in microeconomics.

As we saw above, saving-investment relationship, wage-employment relationship for the economic system as a whole is quite different from the corresponding relationships in a case of individual parts. As we saw above, saving-investment relationship and wage-employment relationship for the economic system as a whole are quite different from the corresponding relationships in case of individual parts.

However, when the resources in the economy are not fully employed, the question of optimal allocation of resources is not of much importance. Moreover, in the modern interest theory i. The study and application of macroeconomics is most commonly employed by businesses, in establishing how they price their products through understanding the needs of consumers.

In the explanation of many economic phenomena, both micro and macro-economic tools and concepts have to be applied. If we discover, for example, empirically stable macroeconomic generalisations which appear inconsistent with microeconomic theories, or which relate to aspects of behaviour which microeconomics has neglected, macroeconomics may permit us to improve our understanding of individual behaviour.

But macroeconomics may also contribute to microeconomic understanding. When macroeconomic variables are analyzed, one must allow for changes in microeconomic variables that influence the macroeconomic variables and vice versa. Jeffrey Glen Among the many branches of economics two of the best known areas are the study of Macroeconomics and Microeconomics.ADVERTISEMENTS: Actually micro and macroeconomics are interdependent.

The theories regarding the behaviour of some macroeconomic aggregates (but not all) are derived from theories of individual behaviour. For instance, the theory of investment, which is a part and parcel of the microeconomic theory, is derived from the behaviour of individual entrepreneur.

Interdependence Between Microeconomic And Macroeconomic. PRINCIPLES OF ECONOMIC (DIFFERENCE BETWEEN MICROECONOMICS AND MACROECONOMICS) CERTIFICATE IN ESTATE AGENCY (CEA) HAFIFI BINTI HAMDAN LECTURER: MRS.

NORZIHA BINTI ISMAIL DIFFERENCE BETWEEN. Micro and macro economics are the two sides of the same cheri197.com is close interdependence between the cheri197.com cannot analyse the individual behaviour without the assuming to aggregate and likewise aggregate cannot be effective unless individual variables are kept under consideration.

Comparatively a change in microeconomic decision making will add up in aggregate to impact the macroeconomic concepts studied. This interdependence, and the foundation of economic theory they both represent, is why any economics curriculum requires extensive study of macroeconomic and microeconomic concepts.

Thus, macroeconomic theory has a foundation in microeconomic theory and microeconomic theory has a foundation in macroeconomic theory. In other words, there is an interdependence between the two.

Interdependence of macroeconomics and microeconomics , Macroeconomics

In practice, analysis of the economy is not done separately in two watertight compartments. ADVERTISEMENTS: Interdependence between Micro and Macro Economics!

Actually micro- and macro-economic are interdependent. The theories regarding the behaviour of some macroeconomic aggregates (but not all) are derived from theories of individual behaviour.

For instance, the theory of investment, which is a part and parcel of the microeconomic .

Download
Interdependence between microeconomic and macroeconomic
Rated 0/5 based on 72 review