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:

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

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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
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shown by one Indian does not imply that each and every Indian will show the gesture.

2. Obsession of Aggregative Approaches:

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

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