Question

Designing models that explain the impact of inflation in the economy is a topic that would be studied by a macroeconomist or a microeconomist? Explain.

Answer 1

"Designing models that explain the impact of inflation in the economy is a topic that would be studied by a macroeconomist or a microeconomist"

For uner standing the above statement, one has to understand the following terms carefully

Macroeconomics: It is a branch of economics which studies how an overall economy,the market or other systems that operate on a large scale,performs. Macroeconomics studies economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.

Microeconomics: It is the social science that examine the implications of incentives and decisions, specifically about how these will affect the utilization and distribution of resources. It describes the pricing of products and money, causes of different prices to different people, how can provide more or less benefit to producers, consumers and others, and how individuals best coordinate and cooperate. Generally speaking, microeconomics provides a more complete and detailed understanding than macroeconomics.

Inflation: Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over some period of time. It is the rise in the general level of prices where a unit of currency effectively buys less than it did in prior periods. Inflation thus indicates a decrease in the purchasing power of a nation’s currency.

Now after having the clearence on the above definitions, one sould be clear that discussing about inflation is not everybody's cup of tea, It requires prior knowledge of overall spending on and for the goods and services in a country. As mentioned above Inflation is a quantitative measure So, it requires brainstorming and that could only be done by a macroeconomist or a microeconomist. For most macroeconomists, the purpose is to maximize national income and provide national economic growth. And one of the major goals of microeconomists is to analyze the market and determine the price for goods and services that best allocates limited resources among the different alternative uses. Models like IS-LM, Neo classical and behavioral economics are some exapmles to be considered that if these theories were not given by great economists they would not have the current value in the education as well as the economy of a country.