1. Macroeconomic theory treats the aggregate it deals with as internally homogenous and overlooks the significance of internal composition and structure of such variables.
2. It tends to make generalizations about the whole economy based on small samples, yet the samples may not accurately reflect the overall picture. The propositions that are true for individuals or small groups are not necessarily true for the economy.
3. The aggregates may not be functionally related. In such a case, the macroeconomic policies that are formulated will be erroneous. For example, aggregate consumption will only be useful for analysis if it is functionally related to levels of income, wealth interest rates, capital gains, relative prices, money stock, attitudes and expectations, consumer credit, etc
4. Aggregate models that may be derived to explain the behaviour of the economy may end up not conforming to the real world. For example, the bulk of the macroeconomic theory developed so far has been relevant to developed countries since most models have been constructed in those countries. These models are far from reality in developing countries.
Dana05 answered the question on July 18, 2019 at 19:41
- What is the importance of studying macroeconomics (Solved)
What is the importance of studying macroeconomics
Date posted: July 18, 2019. Answers (1)
- What are the aims of macroeconomic policies (Solved)
What are the aims of macroeconomic policies
Date posted: July 18, 2019. Answers (1)
- Define the following terms
Economic theory
Economic models
Macroeconomic models
Macroeconomics (Solved)
Define the following terms
Economic theory
Economic models
Macroeconomic models
Macroeconomics
Date posted: July 18, 2019. Answers (1)
- Differentiate between fiscal policies and monetary policies (Solved)
Differentiate between fiscal policies and monetary policies
Date posted: July 18, 2019. Answers (1)
- When is a corporate bond sold at a premium (Solved)
When is a corporate bond sold at a premium
Date posted: July 18, 2019. Answers (1)
- When is a corporate bond sold on a discount (Solved)
When is a corporate bond sold on a discount
Date posted: July 18, 2019. Answers (1)
- What are the advantages of issuing bonds over stocks(Solved)
What are the advantages of issuing bonds over stocks
Date posted: July 18, 2019. Answers (1)
- What are the uses of the yield to maturity(Solved)
What are the uses of the yield to maturity
Date posted: July 18, 2019. Answers (1)
- Differentiate between a bull market and a bear market (Solved)
Differentiate between a bull market and a bear market
Date posted: July 18, 2019. Answers (1)
- Differentiate between the nominal and the real interest rate (Solved)
Differentiate between the nominal and the real interest rate
Date posted: July 18, 2019. Answers (1)
- Explain how the yield curve changes with changes in the short term interest rates in the economy (Solved)
Explain how the yield curve changes with changes in the short term interest rates in the economy
Date posted: July 18, 2019. Answers (1)
- Describe the expectation hypothesis (Solved)
Describe the expectation hypothesis
Date posted: July 18, 2019. Answers (1)
- How does the interest rate affect the prices, demand and yields of bonds(Solved)
How does the interest rate affect the prices, demand and yields of bonds
Date posted: July 18, 2019. Answers (1)
- Highlight the risks faced by bond holders (Solved)
Highlight the risks faced by bond holders
Date posted: July 18, 2019. Answers (1)
- Explain the factors that cause a shift in the bonds demand curve (Solved)
Explain the factors that cause a shift in the bonds demand curve
Date posted: July 18, 2019. Answers (1)
- Discuss the factors that cause a shift in the bonds supply curve(Solved)
Discuss the factors that cause a shift in the bonds supply curve
Date posted: July 18, 2019. Answers (1)
- Give any seven characteristics of preference shares (Solved)
Give any seven characteristics of preference shares
Date posted: July 18, 2019. Answers (1)
- Highlight the characteristics of common shares (Solved)
Highlight the characteristics of common shares
Date posted: July 18, 2019. Answers (1)
- What is the function of brokers and dealers in the secondary market (Solved)
What is the function of brokers and dealers in the secondary market
Date posted: July 18, 2019. Answers (1)
- What is the importance of contractual covenants to money lenders?(Solved)
What is the importance of contractual covenants to money lenders?
Date posted: July 18, 2019. Answers (1)