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According to the law of demand, there is inverse relationship between the price and the quantity goods demanded by the market players.
Although the distinction did not officially take place until 1930s, when simple classical models failed to explain the Great Depression’s persistent high unemployment, micro- and macroeconomics root back much earlier and originate from the first attempts of economists to explain market phenomena.
Microeconomics and macroeconomics (“micro” – small, and “macro” – big) are different aspects of the same subject – “economics” (the word originates from the Greek words οἶκος [oikos], meaning “family, household, estate,” and νόμος [nomos], or “custom, law,” and hence literally means “management of the state” (clearly the macroeconomic approach) or “household management” – sort of a microeconomic approach).
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Therefore, the micro- and macroeconomic theories are considering the same problems from different sides: the former – from the point of view of individual industries and the behavior of individual decision-making units (business firms and households), while the latter examines the economic behavior of aggregates (income, output, employment, production and prices, etc.) on a national scale.
Economics is based on the principle of scarce resources, which is why it uses terms like “opportunity cost” (what we give up or forgo, when we make a choice) and “sunk cost” (that cannot be avoided because they have already taken place).Certainly, it is difficult to determine the extent of necessary control imposed by the higher institutions – e.g. Markets themselves are imperfect, and governments influence the economic systems in order to minimize market inefficiencies, provide public goods, redistribute income, stabilize the economy, and promote low levels of unemployment and inflation.Thus, there are three major macroeconomic points of concern: inflation (an overall price level increase), output growth (or recession – any change – positive or negative – in the aggregate output) and the unemployment (percentage (rate) of the labor force unemployed).Effective economic activity is only possible at the market equilibrium – when supply and demand coincide at a certain level.Excess demand or excess supply – are the market disequilibria.Macroeconomics’ major fields of study are: national production/output (which includes total industrial output, gross domestic product, growth of output, etc.), aggregate price level (producer and consumer prices, rate of inflation), national income (total wages and salaries, corporate profits), total employment and unemployment in the economy (total number of jobs, unemployment rate), etc.The basic decision-making units in the economical analysis are entrepreneurs, firms, and households.Providing recommendations is an even more difficult process.Because there is no ‘ideal’ formula for solving macroeconomic problems, any combination of fiscal or monetary tools would lead to a certain result that is often hard to predict due to additional factors.Expansionary monetary policy is aimed at increasing aggregate output through an increase in the money supply.Stabilization policy is both monetary and fiscal policy that aims at keeping prices as stable as possible and smoothing out fluctuations in output and employment.