What is true at the micro level may be a paradox at the macro level? Explain with an example.
Dear Student
The variables of macro level are dependent on the variables of micro level. So what is logical at micro level must be true at macro level. But there are few exceptions to this statement.
Situations where the facts hold true at the micro level (i.e. in terms of individual economic units) but do not hold true at the macro level (i.e. in terms of overall aggregate units) are known as 'Micro-Macro Paradoxes'
For example :
i. Paradox of Saving: It is said that if an individual in an economy increases his/her savings then his/her savings will rise. But if all the individuals in an economy simultaneously increase their savings then the overall saving of the economy will decrease.
ii. Paradox of Cash Withdrawals: If an individual decides to withdraw his funds from a bank, then it will not harm the workings of the bank. However, if all the individuals decide to withdraw their funds from the bank then this will result in bank failure.
Regards
The variables of macro level are dependent on the variables of micro level. So what is logical at micro level must be true at macro level. But there are few exceptions to this statement.
Situations where the facts hold true at the micro level (i.e. in terms of individual economic units) but do not hold true at the macro level (i.e. in terms of overall aggregate units) are known as 'Micro-Macro Paradoxes'
For example :
i. Paradox of Saving: It is said that if an individual in an economy increases his/her savings then his/her savings will rise. But if all the individuals in an economy simultaneously increase their savings then the overall saving of the economy will decrease.
ii. Paradox of Cash Withdrawals: If an individual decides to withdraw his funds from a bank, then it will not harm the workings of the bank. However, if all the individuals decide to withdraw their funds from the bank then this will result in bank failure.
Regards