Differences between the concepts of macroeconomics and microeconomics

The word macroeconomics means economics in the large. The macroeconomist's concerns are with such global questions as total production, total employment, the rate of change of overall prices, the rate of economic growth, and so on.

Macroeconomists measure overall economic activity; analyze the determinants of such activity by the use of macroeconomic theory: forecast future economic activity; and attempt to formulate policy responses designed to reconcile forecasts with target values of production, employment, and prices.

An important task of macroeconomics is to develop ways of aggregating the values of the economic activities of individuals and firms into meaningful totals. To this end such concepts as gross domestic product (GDP), national income, personal income, and personal disposable income have been developed.

Macroeconomic analysis attempts to explain how the magnitudes of the principal macroeconomic variables are determined and how they interact. And through the development of theories of the business cycle and economic growth, macroeconomics helps to explain the dynamics of how these aggregates move over time.

Macroeconomics is concerned with such major policy issues as the attainment and maintenance of full employment and price stability.

The word «micro» means small, and microeconomics means economics in the small. The optimizing behavior of individual units such as households and firms provides the foundation for microeconomics.

Microeconomists may investigate individual markets or even the economy as a whole, but their analyses are derived from the aggregation of the behavior of individual units. Microeconomic theory is used extensively in many areas of applied economics. For example, it is used in industrial organization, labor economics, international trade, cost-benefit analysis, and many other economic subfields. The tools and analyses of microeconomics provide a common ground, and even a language, for economists interested in a wide range of problems.

Optimization plays a key role in microeconomics. Opportunity cost is an important concept in microeconomics. Major distinctions remain between the two major branches of economics.

Functions of money

The main feature of money is its acceptance as the means of payment or medium of exchange. Nevertheless, money has other functions. It is a standard of value, a unit of account, a store of value and a standard of deferred payment.

Money, the medium of exchange, is used in one-half of almost all exchange. People buy and sell goods in exchange for money. We accept money not to consume it directly but because it can subsequently be used to buy things we wish to consume. Money is the medium through which people exchange goods and services.

In barter economy there is no medium of exchange Goods are traded directly or swapped for other goods. In a barter economy, the seller and the buyer each must want something the other has to offer. Each person is simultaneously a seller and a buyer. There is a double coincidence of wants.

Trading is very expensive in a barter economy. People must spend a lot of time and effort finding others with whom they can make mutually satisfactory swaps. Since time and effort are scarce resources, a barter economy is wastefill.

Money is generally accepted in payment for goods, services, and debts and makes the trading process simpler and more efficient.

Money can also serve as a standard of value. Society considers it convenient to use a monetary unit to determine relative costs of different goods and services. In this function money appears as the unit of account, is the unit in which prices are quoted and accounts are kept.

To be accepted in exchange, money has to be a store of value. Money is a store of value because it can be used to make purchases in the future.

Houses, stamp collections, and interest-bearing bank accounts all serve as stores of value. Since money pays no interest and its real purchasing power is eroded by inflation, there are almost certainly better ways to store value.

Finally, money serves as a standard of deferred payment or a unit of account over time. When you borrow, the amount to be repaid next year is measured in money value.