Relationship between Microeconomics and Macroeconomics

In the parable, a group of blind people happen upon an elephant for the first time, and they each touch one

part—but one part only—of the elephant. Subsequently, when they each describe what they have discovered,

the descriptions are vastly different. The group's members become upset, accusing one another of inaccurate

descriptions or worse. The parable demonstrates how individuals can make absolute truths from their own

limited and subjective information. Financial decision makers run a similar risk, if they choose to recognize

only their own findings and ignore other microeconomic or macroeconomic information and the interaction of

these factors.

A common view to understanding economics states that macroeconomics is a top-down approach and

microeconomics is a bottom-up approach. Financial decision makers need to see both the forest and the

individual trees to chart a course and move toward a strategic objective. They need both the macro data, so

important for strategic thinking, and the micro data, required for tactical movement. For example, the national

rate of unemployment may not have been much help when Bacon Signs was searching for skilled laborers

who could form neon signs. However, the unemployment rate helped inform the company about the

probability of demand for new businesses and the signs they would need.