Much of our world is drastically guided by economic theories. The truth is that the thing that moves our modern world is money. It governs everything that we are able to do with our time. It governs our jobs. It governs where we live. And it governs the standard of living that we all seek to attain. Since these economic theories dictate how this money moves and acts, it’s safe to say that we are all affected by economics. There are two categories of discerning economic policy: microeconomics and macroeconomics. In this post, we’ll discuss the basic differences between each of them, as well as how they are both important. Here’s our breakdown...

What is microeconomics?

Microeconomics studies the economic actions and decisions of an individual, company, or product. It represents an approach to economic policy that could best be defined as “bottom up.” This line of thinking focuses on changing specific instances of behavior, whether good or bad, and demonstrating the effects that it will have on an economy. This approach to economics puts a lot of emphasis on psychological factors that influence spending, which can be incredibly useful in the right context. Microeconomics will also take into account personal behavior, such as opportunity costs, which can be hard to measure in the study of macroeconomics.

What is macroeconomics

Macroeconomics focuses on economic trends on a wide scale, such as entire countries, or even international trade. The point of macroeconomics is to zero in on issues like unemployment, GDP, and exports/imports, in order to see what sorts of general actions can influence them on a wide scale. This kind of study is more often used in regards to monetary policy. Controlling the money supply through the Federal Reserve would be an example of an issue that would be influenced by the field of macroeconomics. Another hot topic that falls in the realm of macroeconomics is the effect of taxes and spending initiatives, since they are both measures that are supposed to lift the entire economy up.

Both are important

The practice of microeconomics is of much more use to businesses and local governments, who deal with issues on a smaller scale and can take the time to look at specific economic instances. Meanwhile, the government of an entire country can’t devote resources and attention to each microeconomic issue, and thus depend on macroeconomics to sway economic trends. People need to be working on both of these fronts for a health economy to exist, because failing to address one set of ideas will lead to the failure of the other.