Interdependence Between Microeconomics and Macroeconomics

Although Microeconomics and Macroeconomics study the economy at two different levels, and although each has its own distinct method (the Slicing Method and the Lumping Method respectively), the two branches are NOT independent, watertight compartments — they are closely INTERDEPENDENT, and modern economic analysis constantly draws on both together.

Macro aggregates are built from micro units. Every macroeconomic aggregate is, in the end, simply the sum of many individual microeconomic quantities: national income is the sum of millions of individual incomes; aggregate (total) demand is the sum of millions of individual consumers' and firms' demand; the general price level is an average built from thousands of individual commodity prices. Macroeconomics could not even be DEFINED without first understanding the individual microeconomic units it aggregates.

Micro decisions are shaped by macro conditions. At the same time, an individual firm's or household's microeconomic decisions are constantly influenced by macro-level conditions. A firm's pricing and investment decisions are shaped by the general rate of inflation and by the interest rate set through the country's monetary policy; a household's spending decisions are shaped by its expectations about the economy's overall growth and employment prospects. The two levels of analysis constantly feed back into each other. …