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The Influence of Microeconomics and Macroeconomics on Financial Regulation

Any economics student that you come across is well aware of the fact that there are two major disciplines in economics, namely, macroeconomics and microeconomics. And sadly, these two disciplines are against each other. In the present, there will be many changes that will affect the financial services industry. What the country is going through in terms of financial regulation is unlike what is has been through in the past. It is only in present years in the financial services industry that two major forces are clashing with each other. Microeconomics is the area of business that students often lean towards. Profit maximization is essentially what this particular business area targets. Businesses can make as much money as possible through fixed costs and marginal costs. Essentially, you are looking at the world using the eyes of the CEO with the concept of microeconomics. A CEO does the best that they can for the company to deliver value and make more money.

For people who are particular with policy, though, what attracts them the most will have to be macroeconomics. Achieving market equilibrium is the overall goal of this economic discipline. This means that goods and services with the greatest number can be exchanged by sellers and buyers using prices they have mutually agreed upon. There is good competition between businesses in this set-up. The use of oligarchies and monopolies is bad. Macroeconomics essentially looks at the world using the eyes of the government. This means that it tries to make everyone happy or perhaps equally unhappy.

Since these two perspectives are very much different, it is expected that they will go against each other in various instances. Though most people are aware that efficient markets will benefit everyone, the steps to get there that the government must take often go against the microeconomic business interest. There are times that the financial industry must stop a merger so that competition can be promoted. Sometimes, there must be proper legislation of disclosures so that informed decisions are made between buyers and sellers. At the same time, certain activities must be stopped or regulated so that some will not be harmed by others financially.

You can always expect the government and business sector to fight over market regulation extent. However, you should know that if the economy is on the rise and everyone is quite happy, the power struggle between microeconomics and macroeconomics stops. Businesses become happy when they are making money. Consumers having money also means that they are happy too. The government is also happy when everything in the system seems to work just good for all involved sectors.

However, with recent financial crises, the financial services industry may get lost and damaged. Any market bubbles are the responsibility of government regulators. It is also their job to recommend the necessary financial and securities regulations and measures to prevent whatever is going on from harming the economy.
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