MACRO ECONOMICS Meaning Scope Importance Limitations Features Assumptions Relation between Micro and Macro Economics Difference between Micro and Macro Economics

Meaning of Macro Economics The word Macro has origin in Greek word Macros which means large. So Macro Economics studies economic problems from the point of view of entire economy. Boulding says, “Macro economic theory is that part of economics which studies the over all averages and aggregates of the system.” According to Shapiro, “ Macro economics deals with the functioning of the economy as a whole.”

Scope of Macro Economics Macro economics covers followings: Theory of National Income Theory of Employment Theory of Money Theory of general price level Theory of economic growth Theory of international trade

Importance of Macro Economics Study of Macro Economics is very important due to following reasons Helpful in knowing the of functioning of an economy Study of National Income Formulation of Economic Policy Study of trade cycles Change in general price level Economic growth ………contd

t …….contd Helpful in study of Micro Economics International Comparisons Economic planning Inter relation among different sectors Helpful in understanding Macro Economic paradox

Limitations of Macro Economics Dependence on individual units Heterogeneous units The composition of structure of aggregates is more important than the aggregate itself Different effects of aggregates Limited application It ignores the contribution of individual units

Features of Macro Economics Macro economics is a short run study Is the study of the economy as a whole It is a systematized and comprehensive body of thought It aims at reforming and not destroying capitalism It is a monetary economics analysis State intervention important Role of investment is very crucial Role of expectations in economics General theory

Assumptions of Macro Economics Short period Perfect competition Closed economy Diminishing marginal productivity Labour is the only variable factor of production Labour has money illusion Money also acts as store of value No time lag Under employment equilibrium Interest is monetary phenomenon Optimum utilization of resources Saving and investment functions

Micro and Macro economics compared Relation Difference Degree of aggregates Objectives Methods of study Paradoxes Assumptions Analytical differeces Difference relating to change Micro depends on Macro economic analysis Knowledge of Micro is essential for Macro economic analysis