Interdependence of Microeconomics and Macroeconomics

Since microeconomics and macroeconomics are the two approaches to the study of the same economy, their study is not conducted separately in two watertight compartments. The distribution between microeconomics and macroeconomics is made to help us understand behavior of economic units both from micro-perspective and macro-perspective. Moreover, the distinction drawn between microeconomics and macroeconomics is just to emphasize that the knowledge of both microeconomics and macroeconomics is essential through understanding of economics activities in an economy. In fact, the basic goal is the same for both branches of economics; the social welfare maximization. Thus, the microeconomics and macroeconomics are interdependent.

The existence of the differences between microeconomics and macroeconomics does not imply that they are independent. In fact, macroeconomic theory has a foundation in microeconomic theory and microeconomic theory has a foundation in macroeconomic theory, i.e., the changes in the variables of microeconomics affect the macroeconomic variables and vice versa.

 

Micro-economics foundation of Macro-economic analysis:

Macroeconomic theory examines the determination of general price level and inflation considering the relative price of commodities and factor of production. But the theory of production and factor pricing is the subject matter of microeconomics.

Similarly, macroeconomic theory is concerned with analyzing aggregate variables such as output and National Income, level of national employment, consumption, investment etc. These variables are also affected by the behavior of individual consumers, firms etc. But the theory of consumers’ and producers’ behavior is studied in microeconomics. Hence, Microeconomics is foundation of Macroeconomics.

 

Macro-economics foundation of Micro-economic analysis:

In microeconomic theory, we examine the consumption and saving behavior of a household in relation to the rate of the interest which is extremely given to the household. At the macro level, we look at how households saving plans and their demands for financial assets interact with the investment and financial plans of firm to determine the level of interest rate in the economy.

Similarly, the behavior of individual consumers and firms which are the part and parcel of microeconomics are also affected by the overall macroeconomic condition. Hence, Macroeconomics is foundation of Microeconomics.

 

Conclusion:

Thus, in gist, relationship between microeconomics and macroeconomics does exist. They are interdependent can be summarized cases as follows;

· It may be emphasized that neither of micro or macro approaches can alone adequately help us in analyzing the working of economic system.

·  It is very essential therefore to integrate the two approaches, if we wish to get correct solutions of our main economic problems.

· If we take a period of unprecedented prosperity in he economy. Even in such boom conditions, it is not uncommon to come across examples of individual industries, which may be more dead than alive.

·  Like wise, in the period of deep depression, there may yet be some individual industries, which may be enjoying great prosperity.