For good or bad, macroeconomics is increasingly playing a greater role in political decision-making. The word macro describes both how the economy works at a national level, as well as its impact on international trade. Macroeconomic modelling, or as some economists refer to it as, micro-economic modelling, as opposed to macro economic modelling, why do the two terms have different connotations?
Microeconomic modelling refers to the economic modelling of the small business or individual households. This type of modelling includes economic modelling of supply and demand, as well as a number of other factors such as technology and political risk. When macro modelling refers to macro economics, it refers to the use of the concepts of demand and supply to model economic activities at the national level. This type of modelling is not limited to a single economic sector, but can include any economy.
Macroeconomic models can also be used in research, as they are widely used for research, planning and public policy. It is estimated that around one third of all global trade is determined by macro models.
The term microeconomics describes the use of economics at a national level in economic modelling, in contrast to macroeconomics, where economics is used to look at any economy. As a result, macroeconomics is often considered a more advanced type of micro economics, because the two types are almost completely dissimilar in the way they model economies.
Another reason that there is a distinction between the two types of economic model is that macro models generally take into account the effects of politics and external factors. In contrast, micro-economic modelling takes into account factors that affect an economy in the local area or within an economy's local area. Many researchers consider that when a country has a strong political system, this can have a strong influence on local economies.
Macroeconomic models have a tendency to be considered more sophisticated than micro-economic models. Although macro-economic modelling can be used to give policy makers with a rough idea of the general condition of an economy, it should not be relied upon to predict the future behaviour of an economy, as many economic variables are hard to model accurately.
As a general rule, economic models that are based on micro-economic modelling tend to be considered less reliable because they often do not have the ability to model large economies very accurately, and also they are unable to deal with the complex issues that are involved with the behaviour of economies in the long run. For example, although some economic models of economies that are based on micro-economic modelling have been able to make accurate predictions of economic conditions in the future, these models have been unable to deal with the impact of inflation, political influences, or technological changes over time.
Although the debate between micro and macro economic models continues to rage on, most economists agree that the debate can only grow in importance in coming years. As a result, there will continue to be a need for experts who are able to offer economic advice using . . . . . . both types of economic modelling.