What is the difference between microeconomics money and macroeconomics money?

Question

In microeconomics, \$USD are a store of value. I can sell a candy bar for \$1, and I can hang onto that \$1 for a year and then buy the same candy bar for that same \$1. If I print \$1 (and get away with it), I can wait a year and buy a candy bar with it. My \$1 has some inherent value.

In macroeconomics, \$USD are simply a means to inject liquidity into the market. If the world sets up a global savings fund, and puts \$1 into it, that money is moot. There won't be more candy bars next year than there are this year. The \$1 is just a means to make my exchange of candy bars convenient. It has no inherent value.

This is something of an over-simplification, and I'm no economist, so probably not entirely correct. However, I frequently encounter people who apply personal-finance microeconomics-style reasoning to discussions of goverment fiscal policy. I have found it to be incredibly difficult to introduce the above distinction, and I have no citations or sources. This is just how it makes sense to me, and my words are apparently insufficient.

So, does this distinction have a name? Is this distinction studied in any text and/or academic circles? What are some ways that the microeconomic dollar and the macroeconomic dollar are two different beasts? What are some simple ways to introduce this distinction to laypeople?

Answer 1

There is no distinction between money in microeconomics or macroeconomics. In both fields money is medium of exchange, unit of account and store of value.

The misconception you have probably arises from the role money plays in microeconomics and macroeconomics.

In microeconomics money is almost always neutral - that is it has no impact on the real variables like equilibrium output, labor supply, demand etc. Many micro models even assume money away and prices are simply given relative to some numeraire good. There are exceptions of course.

In macroeconomics money is also assumed to be neutral in the long run but not in the short run. Hence in macroeconomics money is analyzed explicitly by including price levels, inflation etc. For example, as you mentioned one of the special effects of money is that it can provide much needed liquidity that can boost aggregate demand.

If you are looking into name for the distinction between cases where money matter and when not, that is when it is not neutral and when it is (both in micro and macro) the name is classical dichotomy although the concept is again mainly used in macro since in micro money is almost always neutral

Answer 2

I think for your purposes, the best answer to the question is what you appear to be anticipating: in certain macroeconomics discussions, "money" operates primarily as a unit of account, because of the convenience it offers in allowing the ability to "measure" all the different forms of economic output with a single unit. In that sense, it plays a similar role to energy in classical mechanics.

Answer 3

So, does this distinction have a name?

This distinction is not to be found at the frontier between micro and macroeconomics, but is simply at the root of what distinguishes people (economist or not) that are familiar with monetary economics from those who do not. Then, nothing forbids one to use this branch of economics as a prism to observe economical phenomena, be them macro- or micro-related.

[...] people who apply personal-finance microeconomics-style reasoning to discussions of goverment fiscal policy.

Indeed, this kind of reasoning is very common and actually really problematic, since it leads many people to spread (ideological) misconceptions without even realizing it.

Luckily, reasonings of that sort are easy to counter since only one example is required to show that they are flawed. Talk them about the notion of unconventional monetary policy. E.g. the monetary helicopter.

What would be the transposition of that mecanism in terms of personal-finance ...(?)

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I just want to add that "liquidity injections" of any type (be them conventional or not) are not made ex nihilo. They are the direct transformation of beliefs into value.. which somehow complies with thermodynamics, e.g. the conservation law. The kind of operation that only some central banks can perform... But this is another discussion.

Answer 4

I can sell a candy bar for $1, and I can hang onto that $1 for a year and then buy the same candy bar for that same $1.

Probably not. You have the inflation of the period, so US$1 today can't buy the same products in a year from now.

BTW, I don't see nor remember any lecture distinguishing the use of currency in both fields of economics.

In Economics, the currency is a representation of value. So, a country has produced thousand of tons of iron ore, for example. This only makes sense when we add a currency to it, so we can understand the value of it.

The use of currency in Microeconomics and Corporate Finances is more related to its value in time. That's why you need to learn about present and future values, etc...

In the scrict context of Macroeconomics, currency can refeer to liquidity and mainly growth. Let's supose that this country had a real GDP of US$ 20 trillions. If the governmet issues more money (currency) without increasing production (gdp), this will cause inflation.