The Relations between Macro and Micro Levels of Economic Performances (Term Paper Sample)

The Relations between Macro and Micro Levels of Economic Performances
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The Relations between Macro and Micro Levels of Economic Performances
Microeconomics and macroeconomics are two of the major fields of study in economics. Microeconomics entails studying the decisions made by individuals and businesses concerning the prices of various goods and services and how resources are allocated (Charlton, 2013). It focuses on various forces that regulate the price levels perceived in the market such as demand and supply. On the contrary, macroeconomics is the branch of economics that studies how the economy behaves as a whole and do not emphasize on particular firms. It focuses on entire national and international firms and economies (Sharpe, 2011). The study of the two economic fields may appear to be different. However, macroeconomics and microeconomics are fundamentally interdependent and relate to one another because of the overlapping issues between them.
Evidently, macroeconomics and microeconomics coexist since their fields of interest cannot be separated as they are bound together (Andrew, 2012). The decisions made by individuals have an overall impact on the economies, which are the areas of study in macroeconomics. For instance, a micro-economist cannot study the investment policies in a business without clearly understanding the impacts of macroeconomic trends such as taxation policies and economic growth (Pearson, 2012). Likewise, a macroeconomist cannot engage in studying the overall economy of a nation without getting to understand the demand of individual firms and households (Charlton, 2013). This clearly depicts that both microeconomics and macroeconomics coexist and interrelate with one another.
Some of the theories concerning the behavior of certain macroeconomic components are derived from various theories of microeconomics. For example, the theory of relative prices of products is crucial in explaining the determination of overall price level (Pearson, 2012). Keynes, a renowned economist scholar, applied microeconomics theory to elucidate the rise in the price level to be the result of increased money supply in the economy. He illustrated that an increase in the supply of money increased the total demand in the economy. This led to the production of more output, which in turn resulted in a rise in the cost of production. The level of prices also rose due to the rise in the cost of production (Andrew, 2012).
Clearly, microeconomics and macroeconomics are interdependent. Determination of profit and interest rates are well known microeconomic topics. However, it is vital to understand that they greatly depend upon the aggregates of macroeconomics. Microeconomic theory regard profits as the reward for uncertainty (Sharpe, 2011). However, it fails to illustrate the economic forces that determine the magnitude of profits an entrepreneur earns. The magnitude of profits vividly depends on the level of total national income and the overall price level in the country. In economics, it is clear that entrepreneurs in different fields of the economy incur losses during times of depression when total national income becomes low (Carlsson, 2010). Conversely, entrepreneurs earn ...