Learning Goals:
By the end of this portion of these series of articles, you will have accomplished the following goals:
– Define microeconomics. – Define macroeconomics. – Differentiate between monetary policy and fiscal policy.
Economics is targeted at studying and improving the well being and financial state of all human beings, including those with and without meaningful employment, as well as those with high salaries and those with low salaries. Economics give due attention to the fact that goods and services that are used for something, can often emit byproducts that lead to environmental pollution. It examines the process in which a worker’s skills are improved by them investing in their education. It also examines how large labor unions or large businesses operate in such a way that is beneficial to society, as well as when they operate in such a way that benefits their members or owners at the detriment of society as a whole. It also examines how government spending, taxes, and regulations influence choices and opportunities in the scope of production and consumption.
It should have become pretty obvious by now that economics encompasses multiple different topics and subjects. These topics and subjects primarily fall into one of two subdivisions in economics: Microeconomics concentrates on on the actions of individual forces within the economy, such as households, workers and businesses, while Macroeconomics examines the entire economy. It focuses on topics such as enabling the growth of production as well as common inhibitors to it, the number of unemployed individuals within the total economy, inflation causing rising prices, monetary deficits within the government, and the levels of imports and exports. Microeconomics and macroeconomics should not be seen as mutually exclusive of each other, as they tend to compliment each other via the insight they provide on the economy as an organism or system.
In order to achieve the comprehension necessary to elaborate on why having both macroeconomic and microeconomic perspectives is more useful than just one or the other, you can compare them in similarity to researching a biological ecosystem such as a lake. A researcher who goes on a mission to study the lake might focus on a series of specific topics: specific types of algae or flora, the attributes possessed by various type of marine life and snails, or the trees that grow near the lake. Another research might take a more total approach and take into consideration the entirety of the lake, from what is food for what, how the entire ecosystem is able to maintain a rough equilibrium, and what environmental pressures are able to interrupt this balance. Approaching the study in both ways has it’s usefulness, and both set out to analyze the same lake, but the perspectives are not the same. In a similar matter, both microeconomics and macroeconomics analyze the same economy, but each takes on a different perspective of things.
It doesn’t matter if you are examining lakes or economics, the micro and macro insights should intertwine with one another. Where one would analyze a lake, the micro insights one gains regarding certain flora and fauna would help them comprehend the food chain, while the macro insights regarding the food chain go towards elaborating on the environment in which these individual varieties of flora and fauna reside.
In economics, the micro choices made by individual businesses are largely swayed and impacted by the level of health of the macro economy, one example being that companies have an increased chance of hiring extra workers if the economy as a whole is growing. And yet, the level of health of the macro economy is largely dependant and influenced by the micro choices made by individual businesses and households.
MICROECONOMICS
So what essentially are the deciding factors that contribute to how households and individuals spend their wealth? How can we combine certain types of goods and services to best achieve the needs and wants, in conjunction with the allocated budget for their spending? How do people determine when and where they should work, and if they do decide to work, whether it should be full time or part time in terms of hours? What is the process that governs people deciding to save money for the future, and if so, how much? What about the need or wants that might arise that cannot be covered by the budget, when is borrowing an option?
How is a company influenced into producing a certain quantity of products or services? What factors influence their pricing strategy for those products and services? What factors influence the ways in which those products and services are manufactured or procured? What factors influence things such as the amount of workers the company thinks it will need? How about it’s sources of finance and funding for it’s projects and operations? What factors influence whether or not a business will continue to operate, whether it wants to expand it’s operations or downsize, or even shut down completely? In the microeconomics portion of these series of articles, we will examine both the theory of consumer behavior as well as the theory of the firm.
MACROECONOMICS
What factors influence how much economic activity is occurring in a society? Plainly speaking, what contributes to how many goods and services a country is churning out? What factors influence the amount of jobs that are available for the taking in the economy? What factors contribute to the standard of living in a country? What factors contribute to a country’s economy going from full throttle to full reverse? What factors contribute to companies firing or hiring more workers? And last but not least, what factors contribute to an economy growing over a certain period of time?
An economy’s macroeconomic quality level can be assessed by a number of objectives attributed to it: when the standard of living begins to grow, when unemployment is low, and when inflation is low, which are some of the most crucial things required for a healthy and thriving economy. How can changing macroeconomic policy sway the pursuit of these objectives one way or another? Monetary policies, which can have an enormous impact on bank lending, financial markets and interest rates, are often carried out or designed by a country’s central bank. In the case of the United States of America, this central bank is called the Federal Reserve. Fiscal policy is something that encompasses government spending and taxes, tends to be designed and implemented by a country’s legislative branch. As it pertains to the United States, this would be Congress, and the executive branch, which forms the federal budget for the rest of the government. These are the main weapons the government has in terms of fighting against the war of it’s own ineffectiveness. Americans expect this government to fix any economic issues that the country as a whole might run into, but how realistic is it to carry this assumption around? These are just a taste of the microeconomic and macroeconomic issues that will be examined throughout these series of articles.