Integration of Macroeconomics and Psychology

Question: Discuss about the Integration of Macroeconomics and Psychology. Answer: There exists a close linkage between management and economics, which have led to the growth of managerial economics. A manager requires to cover both macroeconomics and microeconomics as both are equivalent to make a decision as well as analyze a trade. Microeconomics deals with the concept of decision-making by a single customer and macroeconomics focus on the study of economy as a whole (Skott, 2014). Managerial economics on the other hand, applies microeconomic theory as well as techniques to take decision related to management. The managers and macroeconomic environment makes the quantitative data to make microeconomic decision. There are mostly two types of linkages that are used by managers and the macroeconomic environment to make a decision. The first type of linkage deals with forward linkage that helps a manager of a company to sell its commodities to a different company in a different sector. On the other hand, backward linkage deals with the procedure by which the manager of a company acquires its commodities from a different company in a different sector (Ehrenberg Smith, 2016). If a managers wish to raise the price of the commodity due to increase in the cost of production, the manager will scrutinize the price elasticity of demand for that particular commodity so that the increase in price is not followed by a considerable decrease in the demand of the commodity. Recession on the other hand, is described as two successive quarters of negative growth in Gross Domestic Product. In economics, recession is mostly described as a business cycle that leads general declination in the economic activities. It mostly takes place when there is an extensive decrease in expenditure. This may be triggered by several events that includes financial crisis as well as external trade shock. Recession mostly leads to unemployment as well as decline in income and slowdown in industrial production. With the decrease in sales and proceeds in a business, the manufacturers decrease the hiring of new workers and freeze employing entirely. In an effort to decrease cost and enhance the bottom line, the manufacturer will stop purchasing of new equipment (Greenglass et al., 2014). Expenditures for marketing and promoting may also be diminished. As a result, shareholders may also become upset and recession also leads to decrease of dividends. As a result, with decreased rev enue the distressed company will pay its own bills. This will also lead to restructure of debt that will lead to new terms agreed upon by creditors. However, if the debt of the company cannot be serviced, it can lead to bankruptcy. In that case, the Company will be undergoing either reorganization or it completely go out of business. Either the business will cut workers or they will make the work done by lesser people. This might lead to more productivity per worker however; morale may suffer with longer hours (Greenstone, Mas Nguyen, 2014). Governments mostly respond to recession by adopting expansionary macroeconomic policies that includes increase in money supply as well as increase in government expenditure. References Ehrenberg, R. G., Smith, R. S. (2016). Modern labor economics: Theory and public policy. Routledge. Greenglass, E., Antonides, G., Christandl, F., Foster, G., Katter, J. K., Kaufman, B. E., Lea, S. E. (2014). The financial crisis and its effects: Perspectives from economics and psychology. Journal of Behavioral and Experimental Economics, 50, 10-12. Greenstone, M., Mas, A., Nguyen, H. L. (2014). Do credit market shocks affect the real economy? Quasi-experimental evidence from the Great Recession and normaleconomic times (No. w20704). National Bureau of Economic Research. Skott, P. (2014). Pluralism, the Lucas critique, and the integration of macroeconomics and microeconomics. Review of Political Economy, 26(4), 503-515.