Types of Macro Economics

Written By Fathimath Sama on Saturday, 22 June 2013 | 21:39

Macro Statics:

The word 'static'  is derived from the Greek word 'statike' which means bringing to standstill.  In physics, it means a state of rest where there is, no movement. In economics, it implies a state characterized by movement at a particular level without any change. It is a state, according to Clarke, where five kinds of changes are conspicuous by their absence. The size of population, the supply of capital, methods of production, forms of business organization and wants of the people remain constant, but the economy continues to work at a steady pace. "It is to this active but unchanging process", writes Marshall, "that the expression static economics should be applied". 

Static economy is thus a timeless economy where no changes occur and it is necessarily in equilibrium. Indices are adjusted instantaneously, current demand, output and prices of goods and services. As pointed out by Prof. Samuelson,” Economic static concerns itself with the simultaneous and instantaneously or timeless determination of economic variables by mutually interdependent relations.” 

There is neither past nor future in the static state. Hence, there is no element of uncertainty in it. Prof. Kuznets, therefore, believes that, “static economics deals with relations and processes on the assumption of uniformity and persistence of either the absolute or relative economic quantities involved”.

Macro static analysis explains the static equilibrium position of the economy. This is best explained by Prof. Kurihara in these words,” If the object is to show a ‘still picture’ of the economy as a whole, the macro-static method is the appropriate technique, for this technique is one of investigating the relations between macro variables in the final position of equilibrium without reference to the process of adjustment implicit in that final position “. Such a final position of equilibrium may be shown by the equation 

Y = C + I 

Where Y is the total, C is the total consumption expenditure and I the total investment expenditure. It simply shows a timeless identity equation without any adjusting mechanism.

Thus, economic static refer to a timeless economy, it neither develops nor decays, it is like a snapshot from a ‘still’ camera which would be the same whether the previous and subsequent positions of the economy were subject to changes or not. 

Comparative Macro Statics: 

Comparative macro statics, is a method of economic analysis which Was first used by a German economist F. Oppenheimer, in 1916. Schumpeter described it as, “an evolutionary process by a succession of static models. In the words of Schumpeter,” Whenever we deal with disturbance of a given state by trying to indicate the static relations obtaining before a given disturbance impinged upon the system and after it, had time to work it out. This method of procedure is known as,”Comparitive statics”. To be precise, comparative statics is the method of analysis in which different equilibrium situations are compared.

Macro Dynamics: 

Macro dynamics, on the other hand, is the study of change of acceleration or deceleration. It is the analysis of the process of change which continues through time. An economy may change through time in two ways: without changing its pattern and by changing pattern. Economic dynamics relates to the latter type of change. If there is a change in population, capital, techniques of production, forms of business organizations and tastes of the people- in any one or all of them- the economy will assume a different pattern, and the economic system will change its direction. 

Prof. Hicks in his "Value and capital" defines economic dynamics, "as those parts where every quantity must be dated”. But Prof. Harrod does not agree with this when he says, “In dynamics dating is no more necessary than in static.” He, therefore, suggests that dynamics should concern itself with the analysis of, “continuing changes generated by the special nature of a growing economy”. According to him, dynamic economics concerns itself with, “the necessary relations between the rates of growth of the different elements in a growing economy”. Harrod considers once-over changes to fall within the domain of economic statics. Such changes imply a shift from one position 

Ragner Frisch, however, regards economic dynamics not only a study of continuing change but also of the process of change. According to him, it is a system in which; "variables at different points of time are involved in an essential way". Thus, the study of economic dynamics involves the discovery of functional relationships of economic variables at different points of time. The knowledge of such relationships is essential for forecasting. Prediction, thus, becomes the essence of the Frischian definition, according to Baumol economic dynamics is, "the study of economic phenomena in relation to preceding and succeeding events". Economic dynamics is, thus, concerned with time lags, rates of change. In a dynamic economy, data change and the economic system take time to adjust it accordingly. We may conclude with the words of Prof.Kuznets, "economic theory, which seeks to explain the phenomenon of economic change, and to examine the factors at work in bringing about a given change and trace the process of that change and the consequences of succeeding movements step by step is called economic dynamics". 

Notes provided by Prof. Sujatha Devi B (St. Philomina's College)
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