Possibility of Wrong Predictions Policies are framed on the basis of the whole economy sometimes maybe dangerous for some firms and commodities. In view of the fact that investment adds to the productive capacity i. Helpful in Development of Micro Economics It is helpful in the development of microeconomics because the formulation of laws and theories of microeconomics is done with the help of macroeconomics. Macroeconomics are used in a large number of applications. Classical economists stressed the self-adjustment tendencies of the economy. Theory of Development and Planning For fast and balanced development, developing countries apply many economic theories. The Classical Full Employment Equilibrium : According to classical price as opposed to monetary theory, the volume of employment and output is determined not by the level but by the internal structure of prices.
In other words, classical economists stressed the role of real as opposed to monetary factors in determining real variables such as output and employment. It is concerned with the problems of economic fluctuations, unemployment, inflation or deflation and economic growth. Government policies to ensure an adequate demand for output were considered by the classical economists to be unnecessary and generally harmful recommended non-interventionist policy. Next, you'll need to agree to the academic integrity policy. Some classical economists wrongly assumed that there was no relation between wage rate paid and money demand for the product, so that prices would be assumed to remain constant as wages fell.
Examine topics related to interest rates, such as real versus nominal rates, private investments, the consumer price index, hyperinflation, and money supply. Given the conventional framework, Bailey still is remiss in failing to expand the discussion of financial claims beyond money itself. It is called price theory. Nature of Macroeconomics Macroeconomics is basically known as theory of income. He showed how the equilibrium level of national income and employment was determined by aggregate demand and aggregate supply and further that this is achieved at far less than full-employment level in a free private enterprise economy and thereby causing involuntary unemployment of labour on the one hand and excess productive capacity i.
The cause of such unemployment would be too high a real wage. There is a natural rate of unemployment that an economy normally experiences even when an economy is stable. Instead of it, both are not competitive but are complementary and helpful to each other. For example,individual saving is a virtue,wheres the public saving is vice. Completed all lessons in Economics 102: Macroeconomics course and achieved 100% Quiz Progress. You will then need to retake the final exam.
It is helpful in understanding the functioning of macro economics system. As traditionally formulated, the money supply should be expanded each year at the same annual rate of growth of real gross domestic product; the supply of money should be increased steadily between 3% and 5% per year. They also believed in wage-price flexibility. But if micro economic variables relate to dissimilar individual units, their aggregation into one aggregation into one macro economic variable may be incorrect and hazardous. We also assume that the institutional factors which determine this minimum period are given.
Macroeconomic deals with general equilibrium analysis. This problem has now been more or less erased by the use of calculators and the things which are nothomogeneous. The initial point of equilibrium was at point E But after inducement of expenditure by the government the new equilibrium is attained at point E1 which is shown in the following diagram: The initial point of equilibrium was at point E where consumption and investment and government expenditure are equal to Income. Its interest is in relative prices of particular goods and services. The problem of growth is a long-run problem and Keynes did not deal with it. The factor of Boom and Depression in the trade cycle, there effects and removal of these effects are studied in Macro Economics.
Mutual Interdependence of Micro and Macro Economics Though Micro and Macro Economics are two different branches of economic analysis and both have different scope. Deflation, on the other hand, is a decline in the general price level of an economy. Table of Contents includes the following issues: Unemployment: Is Joblessness an Overrated Problem? These are technology, endowment, and individual preferences. Calculate unemployment costs, and examine how the labor market can be impacted by the efficiency wage theory. The Classical Model in a Nutshell : The classical model is presented in the following four equations: 1. Difficult to find out Macro Quantities It is difficult to find out macro quantities.
In this model, output is not a function of price. Macroeconomics and the General Level of Prices: Besides studying how the level of income and employment is determined in the economy, macroeconomics also concerns itself with showing how the general level of prices is determined. Importance of Macroeconomics We live in a complex and interconnected world. This may be true for a firm or an industry, but not for the economy as whole, as some classical writers have wrongly believed. A right shift in the aggregate supply curve means that the quantity of goods and services supplied will increase at a particular price level. The main defect in macro analysis is that it regards the aggregates as homogenous without caring about their internal composition and structure. Determination of quantity of Micro and Macro is done by different methods.
To alter the metaphor it studies the character of the forest, independently of the trees which compose it. We have now stated, in brief, all aspects of macroeconomic theory. Presumably the author regards recent monetary controversies as largely definitional in character. Thus, money has been neutral, the final behaviour of people unchanged, and the price level is higher. Let us suppose that, at existing levels of money wage and price level, employers find it profitable to employ fewer workers than those who wish to work at that real wage.
Prices of goods and inputs are determined. Economic output and price level will move towards the point where aggregate supply equals aggregate demand. Its scope of the study is limited and it is a part of the macroeconomic analysis. No Attention to Structure and Composition of Group Macroeconomics attention is given only towards groups and totals not towards structure and composition of the group. This means that we have an absolute level of prices, which depends on the quantity of money.