These are the main tools the government has to work with. For the United States, this is the Congress and the executive branch, which originates the federal budget. Fiscal policy, which involves government spending and taxes, is determined by a nation’s legislative body.
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For the United States, this is the Federal Reserve. How can macroeconomic policy be used to pursue these goals? Monetary policy, which involves policies that affect bank lending, interest rates, and financial capital markets, is conducted by a nation’s central bank. What determines the level of economic activity in a society? In other words, what determines how many goods and services a nation actually produces? What determines how many jobs are available in an economy? What determines a nation’s standard of living? What causes the economy to speed up or slow down? What causes firms to hire more workers or to lay workers off? Finally, what causes the economy to grow over the long term?Īn economy’s macroeconomic health can be defined by a number of goals: growth in the standard of living, low unemployment, and low inflation, to name the most important. What determines the products, and how many of each, a firm will produce and sell? What determines what prices a firm will charge? What determines how a firm will produce its products? What determines how many workers it will hire? How will a firm finance its business? When will a firm decide to expand, downsize, or even close? In the microeconomic part of this book, we will learn about the theory of consumer behavior and the theory of the firm.
#Micro vs macro economics full#
What determines how households and individuals spend their budgets? What combination of goods and services will best fit their needs and wants, given the budget they have to spend? How do people decide whether to work, and if so, whether to work full time or part time? How do people decide how much to save for the future, or whether they should borrow to spend beyond their current means? In turn, the performance of the macroeconomy ultimately depends on the microeconomic decisions made by individual households and businesses. In economics, the micro decisions of individual businesses are influenced by whether the macroeconomy is healthy for example, firms will be more likely to hire workers if the overall economy is growing. In studying a lake, the micro insights about particular plants and animals help to understand the overall food chain, while the macro insights about the overall food chain help to explain the environment in which individual plants and animals live. Whether you are looking at lakes or economics, the micro and the macro insights should blend with each other.
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In a similar way, both microeconomics and macroeconomics study the same economy, but each has a different viewpoint. Both approaches are useful, and both examine the same lake, but the viewpoints are different. Another person might take an overall view and instead consider the entire ecosystem of the lake from top to bottom what eats what, how the system stays in a rough balance, and what environmental stresses affect this balance. One person who sets out to study the lake might focus on specific topics: certain kinds of algae or plant life the characteristics of particular fish or snails or the trees surrounding the lake. To understand why both microeconomic and macroeconomic perspectives are useful, consider the problem of studying a biological ecosystem like a lake. Microeconomics and macroeconomics are not separate subjects, but rather complementary perspectives on the overall subject of the economy. It focuses on broad issues such as growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports. That ground can be divided into two parts: Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses Macroeconomics looks at the economy as a whole. It should be clear by now that economics covers a lot of ground. It looks at how government spending, taxes, and regulations affect decisions about production and consumption.
#Micro vs macro economics how to#
It probes questions like how to tell when big businesses or big labor unions are operating in a way that benefits society as a whole and when they are operating in a way that benefits their owners or members at the expense of others. It explores the question of how investing in education helps to develop workers’ skills. Economics acknowledges that production of useful goods and services can create problems of environmental pollution.
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By the end of this section, you will be able to: