Apr 30 2012
Seeing the forest through the trees – An intro to Macroeconomics!
Published by Jason Welker at 8:54 am under 2.1 GDP and its Determinants,Macroeconomics
At this point in the course, you may find yourself asking, “what is the difference between microeconomics and macroeconomics?” It has been a long time since we first defined these terms at the beginning of the course. The purpose of this post is to introduce some basic Macro concepts help clear up the confusing and not so obvious differences between these two areas of economics.
A teacher of mine once explained the difference between micro and macro using the example of a tree and a forest. Microeconomics is the like the study of an individual tree, standing in a thick forest of thousands of individual trees of different species. A microeconomist might study the systems that make an individual tree function efficiently, providing it with the sustanence it needs to thrive in the forest. A macroeconomist, however, will take a broader look at the forest as a whole, and observe how the thousands of trees work together in conjunction with the sun, the soil, the oxygen, nitrogen, and H2O in the environment that make the entire forest function efficiently as one giant organism.
Put literally, the tree is like an individual market. This may be a product market like the market for apples, or a resource market like the market for apple pickers. Microeconomists will study the characteristics of an individual market: the firms and their costs, tradeoffs, challenges presented by competition or the inefficiencies that result from a lack thereof, and the buyers in the market: the alternatives and trade-offs they face, the utility they receive and the decisions they make based on these factors. Microeconomics concerns itself not with the health of the economy as a whole, rather with the individual markets, firms, and consumers within the economy, and the challenges of efficiency and resource allocation faced by those markets.
Macroeconomics, on the other hand, studies the health of the economy as a whole. Macro deals with aggregates, or “collections of specific economic units treated as if they were one. ” For example, instead of studying price of a product, as a microeconomist would, a macroeconomist looks at the price level in the whole economy. Whereas a microeconomist looks at supply and demand in a particular market, a macroeconomist studies aggregate supply and aggregate demand, assessing the collective marginal benefit of all consumers and marginal costs of all producers. Instead of quantity supplied, the macroeconomist examines aggregate output, or gross domestic product. Instead of underallocation and overallocation of resources, the macroeconomists concerns himself with unemployment and inflation.
When it comes to the role of government, macroeconomics has a lot more to say about the role a central government should play in managing the economy as a whole. One major theme of microeconomics is that competitive markets, when left alone by government, tend to achieve efficient allocations of resources. You’ll find that in Macro, however, the government often plays a central part in stimulating and slowing down the level of economic activity in the economy, using tools such as fiscal and monetary policy.
Also in macroeconomics, we’ll study in more depth the role that comparative advantage plays in the economic exchanges that take place between nations. International trade also involves the exchange of foreign currencies, which we’ll try to understand by studying exchange rates and the role that governments play in manipulating and controlling the values of their currencies.
Macroeconomics will prove to be particularly relevant to the events going on in the recent turbulent global economy. If have listened to the news lately you’ve heard world leaders, political pundits and commentators from all political and economic leanings use words like “bailout”, “fiscal stimulus”, “monetary easing”, “deficit spending” and others; all concepts having to do with macroeconomics. In the next few months, you will begin to see the forest through the trees as we take on the exciting and challenging field of macroeconomics.
Assignment: Using your economics text and the Economic Dictionary at Econclassroom.com, complete the table below.
- On the left are microeconomics concepts you have already studied as part of the course. Each of these concepts needs to be defined or explained.
- In the right column are the macro concept that corresponds with each of the micro concepts. Each of these terms or concepts needs to be defined and/or explained.
About the author: Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course.
Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this authorRelated posts:
Interesting… so does it matter if you learn macro first or micro first? Our ap econ dealt with microeconomics first, is there a reason for that? What if we learned macro for the first semester and micro in the second, what difference would that make?
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Jason you're the best! I am trying to put together a presentation on water management for a conference in the Balkans, and in trying to find images, your site was one of my first hits in google. Congrats, you've officially made it big!!
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Hi James,
It really doesn't matter whether you take macro or micro first. I am biased more towards macro first which is what I teach. Macro is about citizenship and voting issues (unemployment, inflation, economic growth, deficits & national debt, government stabilization policy, etc.) so if a person could only take one, I would recommend macro.
Best regards,
Steve
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Hi,
A Macroeconomist follows the general description of an economist in that they are experts in the field of science of economics. A Macroeconomist deals specifically in the field of business and finance on a global level.
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Micro Concept Macro Concept
Market Economy
Demand Aggregate demand
Supply Aggregate supply
Price Price level
Quantity GPP
Decrease in demand Decrease in aggregate demand
Increase in demand Increase in aggregate demand
Decrease in supply Decrease in aggregate supply
Increase in supply Increase in aggregate supply
Excise (indirect) tax Fiscal system
Subsidy Fiscal stimulus
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market
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market – economy
demand- aggregate demand
supply- aggregate suupply
price- price per level
quantity- national output or quantity.
decrease in demand – unemployment. bankruptcy, recession
increase in demand – inflation
decrease in supply – profits
increase in supply – economic growth
excise – tax
subsidy – government spending
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market – economy
demand- aggregate demand
supply- aggregate suupply
price- price per level
quantity- national output or quantity.
decrease in demand – unemployment. bankruptcy, recession
increase in demand – inflation
decrease in supply – profits
increase in supply – economic growth
excise – tax
subsidy – government spending
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Market-market
Demand- aggregate demand
Supply- aggregate supply
Price- inflation (price index)
Quantity- GDP
Decrease in demand- aggregate decrease in demand
Increase in demand- aggregate increase in demand
Decrease in supply- aggregate decrease in supply
Increase in supply- aggregate increase in supply
Excise (indirect) tax- aggregate tax
Subsidy- aggregate subsidy
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My Atempt:
Micro Concept Macro Concept
Market Economy
Demand Aggregate Demand
Supply Aggregate Supply
Price (Price Level)
Quantity (National output/income)
Decrease in demand Decrease in Aggregate Demand
Increase in demand Increase in Aggregate Demand
Decrease in supply Decrease in Aggregate Supply
Increase in supply Increase in Aggregate Supply
Excise (indirect) tax (Income/Direct tax)
Subsidy (Government spending)
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Market=Economy
Demand=Aggregate Demand
Supply=Aggregate Supply
Price=Price per level
Quantity=National Output/Income
Decrease in demand=Decrease in aggregate demand
Increase in demand=Increase in aggregate demand
Decrease in supply=Decrease in aggregate supply
Increase in supply=Increase in aggregate supply
Excise (indirect) tax= Indirect/direct tax
Subsidy=Government spending
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Market – Economy
Demand – Aggregate demand
Supply – Aggregate supply
Price – Price level
Quantity – Gross Domestic Product
Decrease in demand – Unemployment
Increase in demand – inflation
Decrease in supply – decrease in aggregate supply
Increase in supply – Economic growth
Excise (indirect) tax – taxation
Subsidy – government spending
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Market- Economy
Demand- Aggregate Demand
Supply- Aggregate Supply
Price-Price Level
Quantity- GDP (Gross Domestic Product)
Decrease in demand- Decrease in aggregate demand
Increase in Demand- Increase in aggregate demand
Decrease in supply- Decrease in aggregate supply
Increase in supply- Increase in aggregate supply
Excise (indirect) tax- Taxation
Subsidy- Government spending
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Market –> Economy
Demand –> Aggregate demand
Supply –> Aggregate supply
Price –> Price level
Quantity –> Gross Domestic Product (GDP)
Decrease in demand –> Unemployment
Increase in demand –> Inflation
Decrease in supply –> Decrease in aggregate supply
Increase in supply –> Economic growth
Excise (indirect) tax –> Taxation
Subsidy –> Government spending
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Micro Concept Macro Equivalent
Market——Economy
Demand——Aggregate demand
Supply——Aggregate supply
Price——Market price
Quantity——Output level
Decrease in demand——Leakage in economic cycle
Increase in demand——Increase in consumption
Decrease in supply——Market contraction
Increase in supply——Increase in national output/GDP
Excise (indirect) tax——Taxation
Subsidy——Government spending
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This would be the table:
Market – Economy
Demand – Aggregate Demand
Supply – Aggregate Supply
price – Price per level
Quantity – National Quantity
Decrease In Demand – Unemployment Bankruptcy
Increase In Demand – Inflation
Decrease In Supply – Profits
Increase In Supply – Economic Growth
Excise – Tax
Subsidy – Government Expenses
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market :economy
demand: aggregate demand
supply: aggregate suupply
price: price per level
quantity: national output or quantity.
decrease in demand : unemployment. bankruptcy, recession
increase in demand :inflation
decrease in supply : profits
increase in supply : economic growth
excise: tax
subsidy : government spending
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Market – Economy
Demand – Aggregate demand
Supply – Aggregate supply
Price – Price level
Quantity – Gross Domestic Product
Decrease in demand – Unemployment
Increase in demand – inflation
Decrease in supply – decrease in aggregate supply
Increase in supply – Economic growth
Excise (indirect) tax – taxation
Subsidy – government spending
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Market – economy
Demand – aggregate demand
Supply – aggregate supply
price – price per level
Quantity – national output
Decrease In Demand – unemployment bankruptcy
Increase In Demand – inflation
Decrease In Supply – profits
Increase In Supply – increase in aggregate supply
Excise – tax
Subsidy – government spending
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Market – Economy
Demand – Aggregate demand
Supply – Aggregate supply
Price – Price level
Quantity – Gross Domestic Product
Decrease in demand – Unemployment
Increase in demand – inflation
Decrease in supply – decrease in aggregate supply
Increase in supply – Economic growth
Excise (indirect) tax – taxation
Subsidy – government spending
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Market – Economy
Demand – Aggregate demand
Supply – Aggregate supply
Price – Price level
Quantity – GDP
Decrease in demand – Unemployment
Increase in demand – Inflation
Decrease in supply – Decrease in aggregate supply
Increase in supply – Economic growth
Excise (indirect) tax – taxation
Subsidy – Spending of government
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Market = Economy
Demand = Aggregate demand
Supply = Aggregate supply
Price = Market price
Quantity = Output level
Decrease in demand = Leakage in economic cycle
Increase in demand = Increase in consumption
Decrease in supply = Market contraction
Increase in supply = Increase in national output/GDP
Excise (indirect) tax = Taxation
Subsidy = Government spending
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Market –> Economy
Demand –> Aggregate demand
Supply –> Aggregate supply
Price –> Price level
Quantity –> Gross Domestic Product (GDP)
Decrease in demand –> Unemployment
Increase in demand –> Inflation
Decrease in supply –> Decrease in aggregate supply
Increase in supply –> Economic growth
Excise (indirect) tax –> Taxation
Subsidy –> Government spending
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Market = economy
Demand = aggregate demand
Supply = aggregate supply
Price = price level
Quantity = GDP
Decrease in demand = decrease in aggregate demand
Increase in demand = increase in aggregate demand
Decrease in supply = decrease in aggregate supply
Increase in supply = increase in aggregate supply
Excise tax = taxation
Subsidy = government expenditure
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Market – Economy
Demand - Aggregate demand
Supply – Aggregate supply
Price – Price level
Quantity – Output
Decrease in demand – Leakages
Increase in demand – Inflation
Decrease in supply – Unemployment
Increase in supply – Injections
Excise (indirect) tax – Taxation
Subsidy – Government spending
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Market – Economy
Demand – Aggregate demand
Supply – Aggregate supply
Price – Price level
Quantity – Output/ Gross Domestic Product
Decrease in demand – Unemployment
Increase in demand- Inflation
Decrease in supply – Economic contraction / decrease in aggregate supply
Increase in supply – Injections / Economic growth
Excise (indirect) tax – Taxation
Subsidy- Government expenditure
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Market – Economy
Demand – Aggregate demand
Supply – Aggregate supply
Price – Same
Quantity – Same
Decrease in demand – Decrease in aggregate demand
Increase in demand – Increase in aggregate demand
Decrease in supply – Decrease in aggregate supply
Increase in supply – Increase in aggregate supply
Excise (indirect) tax – Taxation
Subsidy – government expenditure
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Micro Concept = Macro Equivalent
Market = Economy as a whole
Demand= Aggregate Demand
Supply = Aggregate Supply
Price = Price Level
Quantity = Output/ Gross Domestic Product
Decrease in demand = Decrease in Aggregate Demand
Increase in demand = Increase in Aggregate Demand
Decrease in supply = Decrease in Aggregate Supply
Increase in supply = Increase in Aggregate Supply
Excise (indirect) tax = Taxation
Subsidy = Government Expenditure
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Micro ConceptMacro Equivalent
Market Economy
Demand Aggregate demand
Supply Aggregate supply
Price Price level
Quantity supplied Gross domestic product
Decrease in demand Leakages
Increase in demand Inflection
Decrease in supply Unemployment
Increase in supply Injections
Excise (indirect) tax Taxation
Subsidy Government expenditure
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Microeconomics=Macroeconomics
Micro Concept=Macro Equivalent
Market=Economy
Demand=Aggregate demand
Supply=Aggregate supply
Price=Price level
Quantity=Ouput / Gross Domestic Product (GDP)
Decrease in demand =Decrease in Aggregate demand
Increase in demand =Increase in Aggregate demand
Decrease in supply=Decrease in Aggregate supply
Increase in supply=Increase in Aggregate supply
Excise (indirect) tax =Taxation
Subsidy=Government expenditure
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Microeconomics – Macroeconomics
Market – National Economy
Demand – Aggregate Demand
Supply – Aggregate Supply
Price – Price level
Quantity – National Output
Decrease in demand – Unemployment
Increase in demand – Inflation
Decrease in supply – Falling economic growth
Increase in supply – Economic growth
Indirect tax – Income direct tax
Subsidy – Government spending
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Microeconomic ConceptMacroeconomic Equivalent
Market Economy
Demand Aggregate Demand
Supply Aggregate Supply
Price Price level
Quantity GDP
Decrease in demand Recession
Increase in demand Rise in aggregate demand
Decrease in supply Fall in aggregate supply
Increase in supply Rise in aggregate supply
Excise (indirect) tax Government taxation
SubsidyGovernment expenditure
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Week 23: blogosphere
Microeconomics – Macroeconomics
Market – National economy
Demand – Aggregate demand
Supply – Aggregate supply
Price – Price level
Quantity – output
Decrease in demand – leakage
Increase in D – inflation
Decrease in Supply – Contraction (falling)
Increase in Supply – Rise
Excise – Taxation
Subsidy – Government expenditure
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Micro Concept :Macro Equivalent
Market : Economy
Demand : Aggregated Demand
Supply : Aggregated Supply
Price : Price Level
Quantity : Gross Domestic Product (GDP)/ Output
Decrease in demand : Decrease in aggregated demand/ Leakages
Increase in demand : Increase in aggregated demand/ Inflation
Decrease in supply : Decrease in aggregated supply
Increase in supply : Increase in aggregated supply/ economic growth
Excise (indirect) tax : Taxation
Subsidy : Government expenditure
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Micro Concept = Macro Equivalent
Market = Economy
Demand = Aggregated Demand
Supply = Aggregated Supply
Price = Price Level
Quantity = Output / Gross Domestic Product
Decrease in demand = Leakages / Decrease in aggregated demand
Increase in demand = Inflation / Increase in aggregated demand
Decrease in supply = Decrease in aggregated supply
Increase in supply = Economic growth/ Increase in aggregated supply
Excise (indirect) tax = Taxation
Subsidy = Government expenditure
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