Macro Economics uses and limitations:
Uses and Limitations: Before going to the uses we study first meaning. Macro Economics is the study of aggregates. Macro Economics derived from the Greek word MAKROS which means large. So, Macro Economics is study of the large part of the economy. Macro Economics is that branch of economics which deals with the study of aggregate and average behavior of the entire economy. In this we study the collective functioning of the entire economy. It deals with the aggregate of the economic system rather than with the individual parts of it. Hence it is called as aggregative economics. It splits up the economy into big lumps for the purpose of the convenience of the study. Hence it is called as lumping economy. Macro Economics has many Uses and Limitations also.
Macro Economics Uses:
- Macro Economics uses to Explains the collective functioning of the whole economy: Macro Economics use as to understand the working of a complex economy system. Also it helps to know the overall performance of an economy in a comprehensive behavior.
- Macro Economics has a Wider scope: Macro Economics is much wider scope as it includes topics like national income, unemployment, trade cycle, poverty, inequality Etc. which have national calculation. It is a basis for forming and implementing economic policies.
- Macro Economics uses for formulating economic policies: Macro Economics study is a basis for formulating the various National economic policies like monetary policy, fiscal policy, industrial and labor policy etc.
- Basis for micro economic theories: It is the basis for formatting various microeconomic theories like the law of diminishing marginal utility, consumer surplus, demand and supply etc.
- Easy understanding of microeconomics: The study of macroeconomics makes the understanding of microeconomics much easier for example; if we study the national income and total population of the country it becomes easier to know the per capita income of a person.
- Basis to measure the volume of economic welfare: Macro study helps to measure the level of living standard of the people in a country depends upon the level of national income, the volume and quality of goods and services consume by the people.
- Help in international comparison: Macroeconomics helps to make international comparison of different economics of the world
- Forecasting economic activities: On the basis of the study of the relationship among the various aggregate, it can make reasonable prediction regarding the behavior of different micro economic variables. for example the expected rate of economic growth, the volume of imports to be made Etc.
Macro Economics Limitations:
- Over generalization: Macro Economics defect is that it indulged in excess generalization. For example per capita income is obtained by dividing the national income by total population of the country. But the actual income of an individual may be either higher or lower than the average income thus what is true in case of the entire economy may not be true in case of individual.
- Functional relationship between aggregate: Macro Economics study of aggregates will be significant and meaningful only when they are functionally related for example aggregate demand should be equal to aggregate supply, if aggregate demand is equates to aggregate saving then it is meaningless.
- The problem of aggregation: The study of Macro Economics provides more scientific result only when there are homogeneous in nature. For example the average mark of art section can be obtained by dividing it by total number of arts student if the class consists of few arts, science and commerce and management student in that case average mark of art section is illogical and unscientific.
- Misleading: Macro Economics change may not affect all section of society in the same manner. Aggregative change effect different groups of people in a different manner for example a 10% rise in price level will have adverse effects on consumer while it will have favorable effect on sellers.
- Difficulty in the measurement : Measurement of aggregate itself present serious problem for example if gross domestic savings goes up by 10% it does not mean that the savings of all individual have gone up by 10% it is only the average increase in savings of the people in a society.
- Dynamic and Complex Phenomena: The economy is a dynamic system with complex interactions among various sectors and agents. Macroeconomic models may struggle to capture these dynamic changes and interdependencies accurately.
- Difficulties in Measurement: Macro Economics indicators such as GDP, inflation, and unemployment rates, have limitations in their measurement methods, which can lead to inaccuracies and misguiding.
- Neglect of Microeconomic concepts: Macro Economics can sometimes overlook the microeconomic concepts such as individual firm and firm-level decisions and market structures. This can lead to incomplete or misleading conclusions.
