- Danger of excessive thinking in terms of aggregates: There is danger of executive thinking in terms of aggregates which are not For example,2apples +3apples=5 apples is the meaning full aggregate, similarly 2 apples +3 oranges is meaningful to some extent.
- Aggregate tendency may not affect all sectors equally: For example, the general increase in price affects different sections of the community or the different sectors of the economy differently. The increase in general level of price benefits the producers, but hurts the consumers.
- Indicates no change has occurred: The study of aggregates make us believe that no change has occurred even if there is a change. It indicates that there is no need of new For example, a 5 percent fall in agricultural price and 5 percent rise in industrial prices does not affect the price level.
- Difficulty in the measurement of aggregates: There are at times, difficulties in the measurement of It is difficult to measure the big aggregates. This problem has now been more or less erased by the use of calculators and the things which are not homogeneous.
- The fallacy of composition: The aggregate economic behavior is the sum of individual This is called fallacies of composition. What is true in case of an individual may not be true in the case of economy as whole. For example, individual saving is a virtue, whereas the public saving is vice. According to K.E. Boulding "These difficulties are aggregative paradoxes which are true when used to one person, but false when used to the economy as a whole.
- It ignores the contribution of Individual Units: Macro economic analysis throws light only on the functioning of the aggregates. However, in real life, the economic activities and decision taken by individual units on private- level have their effects on the economy as a Such effects are not known by the study of macro economics.
- Limited Application: Another limitation of macro economics is that most of the models relating to it have only theoretical significance. They have very little use in practical life. Moreover it is very difficult to measure various aggregates of macro economics.
Macroeconomic variable are generally classified as:
- Endogenous Variables: These are those whose value is value is determined within the Some typical endogenous variables used in macroeconomic models are national income, consumption, savings, investment, market interest rate, price level and employment.
- Exogenous Variables: These are those that are determined outside the models, e.g. money supply, tax rates, government expenditures, exchange rates, However depending on the objective of analysis, endogenous variables are converted into exogenous variables, and exogenous variables can be endogenised.