assumption of Marco and micro economics
Answers
- macro economics refer to large study of nature while micro means small study of nature
Microeconomic Assumptions
A basic assumption of microeconomics is that because consumers don’t have unlimited budgets, their available cash for spending must be judiciously allocated for maximum benefit. Microeconomics also supposes that individual consumers make their buying decisions in an effort to obtain the most happiness at the least cost – in other words, maximizing happiness or benefit.
Happiness, of course, cannot be quantified. But there are methods and assumptions in the microeconomics tool box for calculating a reasonable approximation of this elusive concept. In microeconomics, happiness is measured by a concept called utility. The standard unit of measurement that microeconomics uses to measure utility is called the util.
THE MACROECONOMIC ASSUMPTIONS
A relevant group of data that should be put into the Model are the macroeconomic assumptions. General inflation, relative inflation, base interest rates, risk-free interest rates, and exchange rates are key elements for long-term estimates.
General inflation and relative inflation are the first group of assumptions. It is generally good practice to construct the model in nominal terms (that is, including projected inflation).
The model is sometimes designed in real terms, rather than nominal terms, that is, without the effect of general inflation in either costs or revenues. The rationality behind this decision is the following: if the contractually determined revenues and the total expenditures follow the exact same inflation, one can consider a free cash flow in the monetary units of today[12]. This technique appears to simplify the model where all the values are expressed in constant terms.