Respond to each classmate 100 words or more
This this the question they had to answer.
- Explain the difference between macroeconomics and microeconomics. Give examples of the areas of concern for each branch of economics.
- How are macro and microeconomics interrelated?
Differences between Macroeconomics and Microeconomics
Several differences exist between macroeconomics and microeconomics. First, while macroeconomics focuses on behaviors and decisions of governments/countries and how they impact the entire economy, microeconomics looks at individual and business decisions related to prices and allocation of resources. Secondly, microeconomics is a bottom-up approach that examines demand and supply forces that determine price levels (Fine, 2016). Essentially, it tries to understand human decisions, behaviors, and choices and the allocation of resources. On the contrary, macroeconomics is a top-down approach that assesses the entirety of the whole economy while trying to identify courses and nature (Layton, (2019). Some of the questions addressed under macroeconomics relate to stimulants of economic growth or rates of inflation.
Thirdly, while macroeconomics is utilized as an analytical tool to create fiscal and economic policies, investors use microeconomics to make investment decisions. In terms of areas of concern for each branch of economics, microeconomics examines areas like demand, supply, equilibrium, production theory, costs of production, and labor economics (Fine, 2016). On the other hand, macroeconomics looks at investment expenditure, capitalist nation, revenue, national income, and aggregate demand (Goodwin et al., 2018). More significantly, while macroeconomic rules emanate from empirical studies, microeconomics rules begin from a set of compatible theorems and laws.
That notwithstanding, the two areas of economics are interrelated too. Case in point, theories dwelling on the behavior of some macroeconomic aggregates are extrapolated from suppositions of individual behavior. For example, investment theory is derived from individual entrepreneur behavior (Goodwin et al., 2018). Besides that, microeconomic theories are critical in explaining macroeconomic theory, as seen when elaborating general price levels. In this case, macroeconomists rely on the microeconomic theory of relative prices of factors and products to explain the concept (Layton, (2019). Also, the two are related since some individual concepts from each area complement each other, as observed when the microeconomic theory of interest rates was assimilated into macroeconomic theory. This was after Keynes showed interests rates are determined by the supply of money in the economy.
Fine, B. (2016). Microeconomics. University of Chicago Press Economics Books.
Goodwin, N., Harris, J. M., Nelson, J. A., Rajkarnikar, P. J., Roach, B., & Torras, M. (2018). Macroeconomics in context. Routledge.
According to Tucker (2018), Macroeconomics is looking at the forest instead of the trees (p. 6). It would take the approach of the 30,000 feet view to study the effects of multiple variables on the whole economy. Tucker (2018) points out Macroeconomics decision-making would look at how the federal tax cuts will affect unemployment, change in money supply, and inflation (p 6).
Microeconomics on the other hand Tucker (2018) points out takes the view of the individual tree and not the forest. Microeconomics studies the decisions of individuals, families, industry, and levels of government in detail (p. 6). Microeconomics will drill all the way down to evaluate the economic units on a product such as how the market would respond to a price change. For instance, would suppliers adjust their supply or would consumers buy more or less due to a change in price?
Macroeconomics and Microeconomics are connected because both are looking at the same economy, but from a different view with different concerns. Tucker (2018) points out that the overall economy is made up of the sum or aggregation of its parts and a change in macro effects micro and vice versa (p. 6). Both are mutually interested in many of the same events such as a shift in tax policy. Microeconomics will focus on the shift in the supply of a specific market or the decision-making of an individual business. Macroeconomics would study to see if the tax change will increase the standard of living. Lastly, both macroeconomics and microeconomics look at the distribution of scared resources.
Tucker, I (2018) Economics for today (10th ed.). Boston MA: Cenage.