Is macro economics all that essential. I accept that its theories can be used to solve immediate problems. But should it be given that importance that it is used for the study of even long term economic problems. I cant understand y micro economics was ignored both as a field of study but also as a field of research in economics. Actually macro economics developed as a major field of economic research saying that micro economics was incapable of solving inflation, deflation etc. In fact inflation and deflation are the excess of demand and excess of supply and both these problems have been solved in a proper manner in micro economics. But one cant ignore macro economics altogether. If an economic problem exists in an emergency of war, we should solve the economic problem using macro economic theories which can give us an immediate solution rather than micro economics. But is it right to use the theories which is applicable in solving short run problems to solve problems that require a long run solution. Critcizms and arguments are welcome.
I don't understand your premise. Microeconomics is not ignored by academia. The business schools are filled with courses that culd be called subcategories of microeconomics. There are so many business magazines that cover aspects of microeconomics. The public as a whole has little desire to understand either macroeconomics or microeconomics but as voters deciding on public policy the public has a some interest in macroeconomics and therefore the mainstream media gives them a little bit of macroeconomic journalism. What do you mean by "inflation has been solved in a proper manner in micro economics"? If you are talking about inflation in the price of a particular type of widget then the study of that would be microeconomics, but by definition if you are talking about the study of total inflation you are talking about macroeconomics. From Wikipedia: Economics, which focuses on measurable variables, is broadly divided into two main branches: microeconomics, which deals with individual agents, such as households and businesses, and macroeconomics, which considers the economy as a whole, in which case it considers aggregate supply and demand for money, capital and commodities.
Actually inflation is a condition of excess supply or deficiency in demand. Now I will show u how this can be solved by micro economic theory. When there is an excess of supply in the market, the producers of that good is suffering a loss. The condition of excess supply occurs when the consumers feel a distaste towards a product may be because of too high a price or due to some other reason. Now the producers inorder to combat with this situation will decrease the price to an extent which he can so that he can attract more consumers for his product. So the price will decrease and the demand will have a rightward shift. If this didnt solve the problem he will come with a better technology of production that he can reduce the price to a level where the demand equates supply. I am not speaking about courses in micro economics but about the research in this branch. The research work in this field is too poor that none could come with a new theory or phenomenon in the last 50 years.
The argument you present contradicts my logic. Why would an excess in supply be a negatively held idea? Isn't it a good event? Take for instance MP3 players, they're in great supply. I don't think you explained it well. I think what you're trying to say is that with a great supply of a general good like MP3 players you have an onslaught of competitors entering the MP3 market. This competition in general, brings about better products. Thus, better serving the consumer base. I think it's circumstantial, you presented this with "no permise". You generalized this event. An excess in product might mean that the producer is trying to satisfy the customer by decreasing prices, because the producer knows it will be a success. This ties in with what happened with those Plasma T.V.'s recently. How more factories were constructed and more Plasma's were produced. With this the price for this good was driven down. Please Register or Log in to view the hidden image! Are you refering to this graph, this idea? Yes, it's a bit to macroish. I prefer the micro point of view.
First mistake, inbalances in supply and demand are not the same as inflation and deflation. Inbalances in supply and demand are the greater of the two major reasons why prices rise and fall. The rising and falling of prices is inflation and deflation. Second mistake, you say "actually inflation" (which means prices rising) then you talk about excess supply / insufficient demand which is a situation in which prices fall or deflation (not inflation) happens. Your using the wrong words. Better technology = increases in productivity. Productivity is very studied and measured although in my opinion it can't be measured accurately. Per Capita GDP is not a good measure. The other subect you raise, Price elasticity is basic to both macro and micro economics. With excess demand / inflation you (the producer) raise your prices untill the number of would be customers decreases to be equal to the amount of product you can produce. Of course you might want to increase production capacity. BUT, INBALANCES IN SUPPLY AND DEMMAND FOR PRODUCTS IS NOT THE ONLY CAUSE OF INFLATION: If a government decides that it will not tax it's people and will pay for it's government functions and workers salaries by printing money what will hapen to product prices? Think about it. When you increase the number of dollars in circulation you do not change the balance of supply to demand in products but you do change the ratio of dollars to products. Changes in the ratio of money seeking products (and services) to available products (and services) for purchase determines the inflation or deflation. To understand money in circulation you need to understand more than money printing and money burning. You need to understand how lending and lines of credit and reserve requirements affects money supply. You need to understand velocity of money. If everybody spends money as soon as they get it demand is different than if everybody thought for a month before they spend the money they get. WHY DOES INFLATION MATTER? Higher prodoctivity is the cause of the increase in human wealth. Market competition is the force that pushes us to try to be ever more productive/efficient. We want the more prodctive producers to survive and grow and the less productive producers to shrink and die. Lending / borrowing is usually an important part of any attempt to rapidly upgrade either productive capacity or productive efficiency. The lender and borrower project anticipated inflation/ deflation into their agreed upon interest rates. If inflation/deflation does not do what is anticipated we create situations in which more efficient producers can fail and less efficient pruducers can thrive. Remember, some companies borrowed and some did not borrow. Why do Governments interfere with the inflation rates with fiscal policy? They want to promote efficiency and therefore must work for predictable inflation rates. Business cycles lead to unpredictable inflation rates and therefore evening out business cycles benifits productivity. Business cycles are a unavoidable result of a mass defect in human psychology as it applys on a macro scale towards business and consumer decisions. When things go bad we get more negative than the situation demands until we get bored of being in a negative panic and start looking for our opportunities again. When things are going well we get more optimistic than the situation demands and we stop seing the potential pitfalls. Eventually as we start taking our bubble profits the bubble bursts. When the economy is hot inefficient pruducers that should die are kept alive, demand and inflation are high and when the economy is cold even some efficient producers are driven out of business. Extra inflation can pay off your loan for you. Suppose the USA must tax each American $10,000 a year extra from 2020 to 2030 in order to pay off America's debt to China. Now Suppose from 2015 to 2020 the USA prints a lot of money causing inflation that reduces the purchasing power of the 2020 to 2030 dollar to one tenth what it was in 2015, then the USA will still have tax each American $10,000 per year to repay the Chinese but the dollars will only be worth one tenth as much so the Americans will only feel like their being taxed $1000 per year by 2015 standards. I think this may be why Bush does not care how deeply in debt the usa becomes. But if you own treasury bills for your retirement when the USA decides to inflate it's way out of debt your retirement funds will be lost. This is why wealthy senior citizens in the 1970s were so upset by high inflation back then.
Ok I agree to your argument about how inflation is important to an economy, but I am arguing upon the point that isnt inflation the problem of excess supply as discussed under microeconomics. Can u tell me how to draw graphs in posts. Else I could have shown u graphically. Actually in my opinion macro economics is the old wine in a new bottle decorated in such a way that people like it. Macro is the enhanced version of microeconomics which took away the assumption of rationality and made it look like a science of the irrationals.
Hey, ulysses, I don't know about the graph function if there is one, either. I just googled macro.. on images.. that turned up.. I posted.. sorry man.. try googling..
Macro is important because, even if some argue that what macroeconomists study is inaccurate, those in the central bank need to base their decisions on some reasoning. The idea that macro be based on micro seems fully accepted today. Macro phenomenon is understood in terms of micro principles.
Macro is based on micro as I said before. Its theories are based on micro theories by avoiding the assumption of rationality. In other words macro has extended the scope of economic studies for the irrationals. So my basic question is WHY DO WE NEED A SCIENCE FOR THE IRRATIONALS?
