Similarities between microeconomics and macroeconomics
Although it is convenient to split up economics into two branches – microeconomics and macroeconomics, it is to some extent an artificial divide.
- Micro principles are used in macro economics. If you study impact of devaluation, you are likely to use same economic principles, such as the elasticity of demand to changes in price.
- Micro effects macro economics and vice versa. If we see a rise in oil prices, this will have a significant impact on cost-push inflation. If technology reduces costs, this enables faster economic growth.
- Blurring of distinction. If house prices rise, this is a micro economic effect for housing market. But, housing market is so influential that it could also be considered a macro-economic variable, and will influence monetary policy.
- There have been efforts to use computer models of household behavior to predict impact on macro economy.
