Definition of economics: Economics comes from Greek word “Oikonomia”. Adam smith explained the definition of economics in his famous “Wealth of Nations” that “Economics is a science which enquires the cause of wealth. Prof. Marshall said, “A study of man’s action in the ordinary business of life.” Difference between microeconomics and macroeconomics. The difference between micro and macro economics are below
- Microeconomics is the study of particular firm, particular household, individual prices, wages, incomes, individual industries, and individual commodities.
- Micro means very small or millionth part.
- The subject or example of microeconomics is about person, an investor, a producer.
- As it analyzes individually it provides a partial concept or partial figure of a country.
- Micro economics is concerned with the individual entities.
- Macroeconomics deals not with individual quantities as such but with aggregates of these quantities not with individual income but with national income, not with individual prices but with the price level not with individual output but with national output.
- Macro means large or whole.
- The subject of macro economics is about national production, national income, income level.
- As it analyzes overall it provides full figure or complete reflection of a country.
- Macroeconomics is concerned with the overall performance of the economy.
The subject of economics is divided into two classifications
- Positive economics
- Normative economics
These two functions are basics of economics. Learning economics starts with these two subjects. Description of positive economics and normative economics are below
- Positive economics: What is positive economics? Positive economics is that economics where the problems of a country and the possible solutions are described based on real component which has occurred, which can be occurred. Positive economics discusses inquiries and finds its reason. It is based on information so that positive economics is called reality based economics; positive economics examples – positive economics deals with such questions as who do doctors earn more that janitors? Did the North American free trade agreement (NAFTA) raise or lower the incomes of most Americans?
Characteristics of positive economics:
(i) Positive economics based on real evidence.
(ii) Positive economics discusses about the way of solution.
(iii) It is an informative economics.
(iv) There is no relation of ethics here.
(v) It is a pure science.
(vi) Positive economics depends upon real experience and observation.
- Normative economics: In which economics describes what should be done and what should not be, which one is good for human and which one is not good etc. is called normative economics. Normative economics involves ethical precepts and norms of fairness. Examples of normative economics – Has the distribution of income in us become too unequal? There is no right or wrong answer to this question. Because it involves ethics and values rather than facts. Another example is that how does bear or offium is produced? Positive economics analyzes it. But normative economics analyzes that taking Bear or offium is needed or not.
Characteristics of normative economics:
(i) Normative economics describes about good or bad.
(ii) It is based on ethics and values.
(iii) It is an ideal basic science.
(iv) The subject of normative economics is related to development.
Fiscal policy has powerful effects upon economic activity led to the Keynesian approach to macroeconomic policy which is the active use of government action to moderate business cycles.
Keynesian macroeconomics policies are
- First, the explicit dedication of macroeconomic policy instruments to real economic goals in particular full employment and real growth of National income.
- Second, Keynesian demand management is activist.
- Third, Keynesian has wished to put both fiscal and monetary policies in consistent and coordinated harness in the pursuit of macroeconomic objectives.