Limitations of Macroeconomics

There are certain limitations of macroeconomics. These limitations, however, are more in the nature of practical difficulties in formulating meaningful aggregates rather than factors invalidating macroeconomics are as follows:

False Generalizations

The main limitation of the aggregative approach is that the logic and conclusions which may be true for individuals or small units tend to be false when applied to the system as a whole. The generalizations derived from individuals and applied to the whole system may be dangerous, irrelevant and misleading.

What is true at the micro level need not be true at the macro level. We must, therefore, be on our guard against generalizing too much from individual experience.

Difficulties in Measuring the Aggregates

Macroeconomic analysis cannot be very precise because of heterogeneous nature of different elements constituting an aggregate. The introduction of money as a common measuring rod has, undoubtedly, added meaning to macro analysis. The aggregate income, consumption, saving and investment are measured in terms of money and not in term of heterogeneous goods and services. However, the value of money itself continues changing which renders difficult comparisons of economic aggregates changing which renders difficult comparisons of economic aggregates over time.

Diversities

An aggregative tendency may not influence all the sectors of the economy in the same manner. A general rise in prices, for example, may not affect all the sectors of the economy in a similar manner. Some sections may be affected adversely than others.

Thus, it is clear from the above discussion that the limitations associated with macroeconomics affect only its practical significance. These limitations, in no way, invalidate the macroeconomic techniques.

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