Macro Economics – Importance and Limitations

Meaning of Macro Economics

The word macro means big. Thus, in Macro Economics, either the whole economy is studied or those big units which are related to the economy as a whole.


In the words of Prof. Boulding

Macro Economics deals not with individual quantities as such but aggregates of these quantities, not with individual incomes but national income, not with individual output but with national output.

It studies the various groups related to the whole economy, like, national savings, national income, national consumption, total employment, total production, etc..

Historical Background

In its development, Keynes’ book General Theory of Employment, Interest and Money played a significant role. Apart from Kaynes, economists like Walras, Wicksell, Böhm-Bawerk and Fisher also contributed significantly.

Importance and Merits of Macro Economics

  1. Importance in Planning

    Macro economies has played a very important role in determining the policies of the modern planning era. It acts as a pathfinder in the determination of economic policies.

  2. Importance in Special Areas

    The fields of international trade, national income, national investment are such areas where only macro approach applies not micro economics.

  3. Helpful in Understanding Paradoxes

    It helps in understanding the situation under paradoxes because sometimes conclusions drawn-for individual units are not appropriate from the point of view the whole economy. For example, individual savings is a. blessing, while suppose situation like every person of that country is saving money, will be a curse.

  4. Helpful in Monetary Policies

    Many monetary problems, like, inflation and deflation etc. can be analysed with the help of macro approach and controlled by adopting the appropriate monetary policy.

Limitations and Demerits of Macro Economics

  1. No importance to Individual Units

    Under macro economics, in comparison to individual units, a group of units is given more importance. But it is not necessary that what is right for individual person, would also right for a group. For example, an individual can withdraw the amount saved in a bank at a time but if all individuals do the same, the banks will have to close down.

  2. Difficulty in Measuring Aggregates

    Measurement of aggregates becomes very difficult. The reason is that there are numerous items in a group, which are sometimes not possible to measure separately.

  3. Danger in Ignorance of Individual Units

    When we study a group under macro economics, there is always a danger that we may ignore the numerous individual units which form the group.

How are Micro and Macro Economics different?

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