Scribd
Upload
7K views2 pages

Unit - 1 - 2 Limitations of Macro Economics.

Macroeconomic analysis has limitations that can lead to erroneous conclusions if not properly applied. Some key limitations include: excessive generalization from individual observations to the entire system; issues with aggregative approaches that treat heterogeneous individuals as homogeneous; deductive inferences about individuals from aggregates may not always be accurate; inconsistencies can arise between overall changes and changes experienced by individuals. Macroeconomic analysis alone does not provide a full picture of an economy - microeconomic analysis is also needed to identify underlying issues.

Uploaded by

Deeksha Kapoor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
7K views2 pages

Unit - 1 - 2 Limitations of Macro Economics.

Macroeconomic analysis has limitations that can lead to erroneous conclusions if not properly applied. Some key limitations include: excessive generalization from individual observations to the entire system; issues with aggregative approaches that treat heterogeneous individuals as homogeneous; deductive inferences about individuals from aggregates may not always be accurate; inconsistencies can arise between overall changes and changes experienced by individuals. Macroeconomic analysis alone does not provide a full picture of an economy - microeconomic analysis is also needed to identify underlying issues.

Uploaded by

Deeksha Kapoor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Limitations of Macroeconomics.

Macroeconomic analysis has been gaining strength ever since the publication of J.M.
Keynes’ General Theory of Employment Interest and Money.

Inductive method has, however, posed the danger of excessive generalization of individual
experiences to the system as a whole. Such pitfalls need to be avoided if macroeconomics is
to serve as a handmaid of public policy. Let us outline such pitfalls as the limitations of
macroeconomics:

1. Excessive Generalization:

ik
As hinted above, generalization of individual observation to the system as a whole may lead

sh
to erratic inferences about the system as a whole. For instance, a loss incurred by one firm
in an industry does not necessarily imply losses to all other firms in it. Likewise, hospitality
au
shown by one Indian does not imply that each and every Indian will show the gesture.

2. Obsession of Aggregative Approaches:


k

Excessive thinking in terms of lumping the individual units together may lead to erratic
al

inferences. Individual units possess individualistic traits. They are non-homogeneous in


character. One can’t add up two apples and three oranges to make any meaningful
m

aggregate.
ka

3. Fallacy of Deductive Inferences:


Inferences deduced about individual units from the aggregative tendency may not always be
true in respect of individual units as well. For instance, a general rise in prices may not
affect all the sections of the community in the same manner. A consumer suffers from rising
price level while a producer benefits from it.

4. Inconsistency between Overall and Individual Changes:


A hike in prices of industrial output and a fall in prices of the agricultural products may
offset each other to lead to no rise in the general price level. On the basis of stability of the
general price level, one who believes that no policy change is called for in the circumstances
would certainly jeopardize the cultivators’ interests.
5. Problems of Measurement of Aggregates:
In many cases measurement of aggregates involves serious problems. You will learn more
about such problems in higher classes.

To conclude, macroeconomic analysis, by itself, may not provide a true picture of an


economy. It may appear like the top surface of an ocean appearing calm and unruffled from
above yet harbouring quite a few storms underneath. To locate the trouble spots, it is
microeconomic analysis that is called for.

ik
sh
k au
al
m
ka

You might also like