Macroeconomics vs. Macroeconomics

Among the many branches of the economy, two of the most well known areas are the study of macroeconomics and microeconomics. The two concepts are closely related and can be confusing at times. This article will provide you with the explanations necessary to distinguish between macroeconomics and microeconomics.

Macroeconomics

Macroeconomics bezieht sich auf das „Big Picture“ Studium der Ökonomie und betrachtet Konzepte wie Industrie, Land oder globale Wirtschaftsfaktoren. Die Makroökonomie umfasst Konzepte wie das gross domestic product (BIP) eines Landes, Arbeitslosenquoten, Wachstumsraten und wie diese Konzepte miteinander interagieren.

The study and application of macroeconomics is incredibly important at the government level, as the political and economic decisions and regulations that are made by government can have a significant impact on many aspects of the overall economy. To demonstrate macroeconomic theory in practice, let's briefly consider how interest rates fit into macroeconomic policy.

Extensive studies examine the reasonable interest rates in an economy where the government sets a key interest rate and banks operate from there. When interest rates rise:

- People can save more money when they get a better return on their deposits.

- The business will invest in less expansion as borrowing costs relatively more.

- The local currency will appreciate as deposits in that currency can now earn more than other currencies.

- Inflation will fall because, in general, saving is the order of the day and spending is falling and people are buying less.

- The opposite would be expected for every point when interest rates go down.

This becomes very complex because "relatively high" or "relatively low" are very loose relationships and many factors also influence decision-making (ie taxes and employment rates). Then the impact of other countries' political decisions must be taken into account, even if they have an impact on what happens to one country's economy.

In theory, macroeconomics can be simple because for any change in a relevant number it can be assumed that if all other factors are constant, this would happen. In reality, all factors are in constant motion and the implementation of macroeconomic policies is very difficult to manage.

Microeconomics

Mikroökonomie bezieht sich auf mehr individuelle oder firmenspezifische Studien in Wirtschaftswissenschaften. Wie Unternehmen Preise festlegen, wie sich die Steuern auf individuelle Entscheidungen auswirken, das Konzept von supply and demand. Die Mikroökonomie betrachtet alle kleinen wirtschaftlichen Entscheidungen und Interaktionen, die alle zu den Gesamtkonzepten der Makroökonomie passen.

The study and application of macroeconomics is most commonly used by companies to determine how they value their products through understanding consumer needs. The focus is on the concept of supply and demand and how both factors influence pricing.

Services: Of course, if there is an oversupply for a particular product, the price will be lowered (provided that the demand for that product remains constant). People don't want the product anymore than they used to, but since there is so much of this product people are only willing to pay a limited amount. Alternatively, if supply goes down but demand stays the same, people are willing to pay more for the same product.

Demand: If people want a product more than before, let's say it's the “must” of the year, the price of that product will go up if the offering of that product stays the same. People will pay more to get the product to make sure they get it. When demand subsides, when something goes out of style, there may still be the same amount for sale in the market but people don't want it anymore so the price goes down.

These relationships are the focus of microeconomics and how various factors (e.g. taxes) affect the supply and demand model for products in general. Companies also need to be aware of these concepts in order to effectively price their products to ensure they can maximize their profits.

Summary

In essence, the two concepts are very closely related. A change in macroeconomic policy will affect many basic microeconomic transactions. In comparison, a change in microeconomic decision-making will have an overall impact on the macroeconomic concepts examined.

This interdependence, and the foundation of economic theory that both advocate, is why an economics curriculum requires an extensive study of macroeconomic and microeconomic concepts.

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