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The Differences Between Macro & Micro Economics

by Neil Kokemuller

Economics is the study of how governments, populations, businesses and individuals make decisions on how to utilize resources. Macroeconomics, often referred to as “big picture” economics, looks at the influence of government-level economic policies on an economy. Microeconomics refers to the lower-level activities of individual consumers and businesses.

Macro Basics

The government, investors, financial analysts and companies all pay close attention to several macro-level indicators of economic conditions. The gross domestic product, or GDP, is a primary macro indicator of a country’s economic production in a given period of time. Unemployment rates are a major factor used by the government to set economic policies. Companies also look to unemployment trends in making business expansion and hiring decisions.

Policy Decisions

In the United States, the central bank, led by the federal reserve chairman, makes economy policy decisions. Policy makers rely on macro-level economic data in setting policy. Inflation rates, real estate trends and home values and economic growth patterns are common macro-level indicators used. The Central Bank sets the federal funds rate, which influences interest rates for consumer and business savings accounts and loans. The primary concerns of monetary policy are to balance healthy growth with moderate inflation, or price increases.

Microeconomics and Business

Supply and demand is a prevalent microeconomic drive of business decisions. Essentially, companies compare the available goods in a market to the customer demand at certain prices. Business owners also look at emerging markets and customer demand in deciding where to invest resources. New product developments, company expansions, downsizing and supplier negotiations are all examples of micro-level business considerations.

Microeconomics and the Individual

Consumers also make microeconomic decisions, including how to spend income. Budgeting for monthly home payments, car payments, food, utilities and other household expenses is a core microeconomic activity for individuals. People also watch news on economic conditions in making investment decisions and in deciding whether to spend confidently or save money for financial security. Going to school, getting training, searching for jobs and going through hiring processes are also microeconomic activities for individuals.

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