Microeconomics vs. Macroeconomics

Phoenix1

Member
  • #1
You've likely heard of economics, but have you heard of microeconomics and macroeconomics? If you've taken a business class in high school or college, you probably have heard of either of these two. They're both closely related to one another and believe it or not, one couldn't exist without the other. They're symbiotic, if you will.

Economics doesn't discriminate. It doesn't care if you're young or old, rich or poor, or whether you have a job or not. It's the study of the economy and everything contained therein. It studies production and the impact that production has on the planet; the well-being of its inhabitants as well as the well being of its environment. Economics deals with pollution, developing nations, labor unions, government spending, taxes, and so much more.

Contained within the broad realm of economics is two subsets: microeconomics and macroeconomics. As stated above, one relies on the other. Microeconomics is the study of the smaller aspects of the economy, such as the individual, households, small businesses, large businesses, organizations, and so forth. Macroeconomics is the study of the entire economy as a whole. It delves into areas such as overall production, general unemployment, inflation, government spending and debt, national exports and imports, and so forth. Both of these areas rely on one another, as one couldn't exist in absence of its counterpart.

When studying economics, it's critical to understand the roles both the macro and micro subsets play. The best way to put things in perspective is via an example. We'll use a household as this example.

Let's say we've got a multi-functional household. There are various parts and they all work together. One person in the home may deal primarily with arranging the furniture, purchasing the groceries, making dinner, deciding which wallpaper goes in which bedroom, and how best to manage the flow of everyday life inside the structure. Another person may take an entirely different view - a more holistic and overall view as opposed to one so detailed and minute. This person may deal with paying the property tax, making sure the roof of the home is in good order and doesn't leak, making sure any snow is cleared from the driveway so traffic can enter and exit, and making sure the home is safe and secure. As you can see, both of these approaches to managing the home are useful and necessary, but one focuses much more on the daily goings ons, while the other focuses much more on making sure there's an actual home to house the inhabitants. One is like an umbrella while the other is like the person under the umbrella. Both important. Both necessary. Both different. They've got different viewpoints.

With both economics and running a household, it doesn't matter which aspect you look at more. What is important is that you appreciate both as functional parts of the whole. In the home, what goes on inside is just as important as what goes on outside. You'd have no reason to have a home if nothing occurred inside of it. Just like you'd have nothing to do inside of a home that wasn't safe, couldn't be accessed because of snow, or if it didn't have a roof. When it comes to micro and macroeconomics, when the overall economy is healthy, more small businesses hire people and individuals make more purchases. But if people aren't buying, then small businesses won't do well, which would affect the entire economy as a whole. It's like a ying/yang thing.
 

Phoenix1

Member
  • #2
Microeconomics & Macroeconomics Descriptions

Micro

Households only have a certain amount of money to spend each year. How will they do so? What goods will they buy? What services will they seek? Will those in the household be able to afford these things with money they earn or will they have to go into debt to purchase them? Where do individuals work? What made them decide to seek employment at these places? Do they work full time? Part time? What types of retirement savings do those in these households have? How much do they spend on credit cards? What's the average or cumulative consumer debt across the nation?

When it comes to business, what types of products are being sold? How many will each firm produce? Is there a market for these products or services? What will the prices be and what determines those prices? How many employees will be employed by each business? Will a business use debt to operate? Money on hand? Savings? Investments? Do these businesses plan on growing, shrinking, closing down? All of these questions are asked under the umbrella of microeconomics.

Macro

How many goods and services will the entire nation produce? What's the overall level of employment nationally? How much money does each person of the nation earn per year, per capita? What's the standard of living? What causes the overall economy to increase in size or decrease in size? What factors cause its acceleration or deceleration?

Within the realm of macroeconomics, many areas are studied and goals for a healthy economy are produced. Goals such as maintaining a specific standard of living, a certain level of unemployment, a particular yearly inflation target, and others. When it comes to meeting these goals, a variety of tools are used. Tools such as the tightness or looseness of bank lending, Federal Reserve interest rates, and the required function of the capital markets.

A lot goes into the macroeconomic picture, from the central bank to the United States government, to spending, and taxes. All of these things work together to set the stage for a well functioning economy.
 
Last edited by a moderator:

Phoenix1

Member
  • #3
Microeconomics & Macroeconomics Questions

1. What would be another example of a "system" in the real world that could serve as a metaphor for micro and macroeconomics?

There are many examples that can be used as metaphors. One might be the oceans. A marine biologist may study small areas of ocean life and habitat, such as types of fish, plants and plankton off the coast of Maine. Federal and global entities may study sea level and overall temperature and pollution. The fish in a specific area would certainly be affected by the macro picture while rising temperatures and pollution levels would be less critical if no fish or marine life existed at all.

Another example might be the study of the solar system (micro), versus the study of the galaxy or universe as a whole (macro).

2. What is the difference between microeconomics and macroeconomics?

Microeconomics concerns itself with the individual, household, city, state, business, and organization level economics, while macroeconomics concerns itself with federal and global issues, such as interest rates, unemployment rate, debt per household per capita and things like that.

3. What are examples of individual economic agents?

Micro: Households, workers, and businesses. Macro: Production growth, unemployment, inflation, national deficits, imports, exports, and global trade.

4. What are the three main goals of macroeconomics?

The three primary goals of macroeconomics are an increase in the standard of living, keeping low unemployment, and a low steady inflation rate (2%, according to the Federal Reserve).

5. A balanced federal budget and a balance of trade are considered secondary goals of macroeconomics, while growth in the standard of living (for example) is considered a primary goal. Why do you think that is so?

It could be because a federal budget and balance of trade are concerns of the federal government, while an increased standard of living is more of a concern of the Federal Reserve. The Federal Reserve increases or decreases the amount of debt (currency, money supply) in our society, while the federal government merely works within the framework of the current money supply availability. The federal government can't create money, while the Federal Reserve can, which is why it's impossible for the government to increase the standard of living for everyone without taking on more federal debt, which the Federal Reserve issues.

6. Macroeconomics is an aggregate of what happens at the microeconomic level. Would it be possible for what happens at the macro level to differ from how economic agents would react to some stimulus at the micro level? Hint: Think about the behavior of crowds.

The aggregate of microeconomic factors could differ from specific microeconomic agent stimulus if one agent somehow decreased some sort of micro level while another agent increased a different micro level. It would sort of be like a see-saw, evening out in the middle. Also, there are many outside agents that could influence the macroeconomic picture. It really depends on how macro macro is. Is it national or global? National trade deals could heavily influence the economic situation of a nation while the microeconomic situation wouldn't change all that much.
 
Top