What is Macroeconomics?

Correct answer: A. The opposite effect on aggregate demand and income may be ignored

Explanation: The paradox of thrift shows that saving is sensible for an individual, but if all households simultaneously reduce consumption, aggregate demand may fall. Lower demand can reduce firms’ sales, production, employment and incomes, potentially lowering total saving despite the intention to save more. This fallacy of composition is why individual and macroeconomic effects must be distinguished. Thus, A is correct.

Correct answer: B. It studies aggregate variables, their interrelationships and policy effects for the whole economy

Explanation: Macroeconomics studies the economy as a whole through aggregate variables such as national income, total output, employment, unemployment, inflation, saving, investment and external transactions. It also examines how these variables interact and how public policies influence overall economic performance, stability and welfare.