Even
thought economics can conveniently be divided into the above branches (micro
and macro), neither of the two on its own provides a full picture of economics.
Economics is complete only as the two are studied and employed together in
decision-making. Indeed, each one provides tools for the better understanding
and analysis of the other. We cannot understand, for example, how the economy
at large works and the behavior of aggregate (macroeconomics) variables except
we understand the behavior of small (individual) units of these same variables
at the micro level.
thought economics can conveniently be divided into the above branches (micro
and macro), neither of the two on its own provides a full picture of economics.
Economics is complete only as the two are studied and employed together in
decision-making. Indeed, each one provides tools for the better understanding
and analysis of the other. We cannot understand, for example, how the economy
at large works and the behavior of aggregate (macroeconomics) variables except
we understand the behavior of small (individual) units of these same variables
at the micro level.
An
understanding of how the individual behaves in relation to consumption and
savings, for example, is needed to analyze the behavior of the economy in
relation to aggregate consumption and savings (since aggregate consumption and
savings consist of the consumption and saving of all individuals or households
put together). It is on the basis of this microanalysis that we can predict,
for example, what will happen to aggregate consumption and savings, and hence
aggregate output, if the government should take on a policy that reduces income
tax. On the hand, knowledge of macroeconomics and the tools thereof is needed
to evaluate the behavior of individual units.
understanding of how the individual behaves in relation to consumption and
savings, for example, is needed to analyze the behavior of the economy in
relation to aggregate consumption and savings (since aggregate consumption and
savings consist of the consumption and saving of all individuals or households
put together). It is on the basis of this microanalysis that we can predict,
for example, what will happen to aggregate consumption and savings, and hence
aggregate output, if the government should take on a policy that reduces income
tax. On the hand, knowledge of macroeconomics and the tools thereof is needed
to evaluate the behavior of individual units.
Again,
assuming a society is operating within its production possibility region (i.e.,
below full employment) macroeconomic analysis tells us how to bring the economy
to the employment level (i.e., to operate on its production possibility
boundary). Once the economy is brought to this level, we are again faced with
the problem of allocation of resources at the full employment level. That brings
us back to microeconomics,. Hence, there is a synthesis between micro and
macroeconomics. Samuelson (cited in Branson, 1979:4) calls this the
neoclassical synthesis.
assuming a society is operating within its production possibility region (i.e.,
below full employment) macroeconomic analysis tells us how to bring the economy
to the employment level (i.e., to operate on its production possibility
boundary). Once the economy is brought to this level, we are again faced with
the problem of allocation of resources at the full employment level. That brings
us back to microeconomics,. Hence, there is a synthesis between micro and
macroeconomics. Samuelson (cited in Branson, 1979:4) calls this the
neoclassical synthesis.