Microeconomics is usually considered a branch of macro theory. It studies the behavior of discrete quantities in markets, with an emphasis on the financial and social impact of those quantities. The pure act of making money is micro economic activity. So when a company makes money it is not just a case of spending it but also analyzing the effect of the spending, planning for future purchases, ensuring that costs do not exceed expected sales levels, and ensuring that distribution costs are controlled to maximize income.
Micro economic theories are very broad and include the business cycle, interest rates, government policy, consumer demand, business cycles, industrial production, geographic location, technology adoption, inflation, free trade protectionism, exchange rates, international trade, political economy, and welfare economics. The breadth of the subject and its close relation to macro economics means that microeconomics is also called micro-economic theory. The theories of micro and macro are highly interdependent and influence each other. Micro economic concepts are influenced by macro economic concepts, and vice versa.
The key economic concept used by macro models is unemployment. They attempt to describe the changes in the level of employment in the economy due to changes in the availability of money. The difficulty with this theory is that it is based on the assumption of the natural rate of unemployment, which is likely to be far lower than the real average. Also it is very difficult to measure the state of the economy from a macroeconomic perspective without taking into account all of the markets.
Another common micro theory in micro-economic theory is capital budgeting. In this theory the economic growth is determined by the availability of funds, which is usually a function of the size of the capital stock and interest rates. It is used to explain the variations in economic activity between micro and macro periods. For example, during an expansionary period (a period in which growth is noted because there are more goods and services sold than bought), investors may divert their savings to invest in more risky ventures.
One of the most prominent uses of micro and macro perspectives in macro theory is in the analysis of business cycles. Between micro and macro perspectives, business cycles exhibit pronounced non-trending characteristics (in the sense that the same pattern repeats itself between periods). Micro perspectives, on the other hand, attempt to detect and predict possible future trends in the rates of interest, credit, and manufacturing. In both cases, the dominant conception tends to be that of the relation between the short term and long term rates of interest. The short term view can be seen as having a close connection with the business cycle, whereas the long term view is more abstract, often focusing on the investment climate or the outlook for government finances.
Although all these different perspectives on macroeconomics have important merit, the macro approach remains predominant in mainstream macroeconomic thinking. A modern manifestation of this is the widespread use of economic indicators and tables such as the ISEQ (International Components of Storage Energy Efficiency) index, the European Central Bank's (ECB) Eurostat, and other measures of economic performance around the world. In addition, sophisticated tools and models based on micro and macro economic theory are also used in forex trading, stock trading, bonds trading, and mortgage trading among others. This broad perspective can be useful in providing an initial framework for assessing and theorizing about macro issues relevant to business and economic decision making.
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