Summary
Highlights
Economics is divided into two primary branches: microeconomics and macroeconomics. Microeconomics, derived from the Greek word 'micros' meaning small, focuses on the behavior of individual actors within the economy. This can include a single consumer, household, firm, or even an entire industry. Examples of questions addressed in microeconomics include how consumer demand changes when car prices rise, or how demand for meat shifts with increasing income levels. Essentially, microeconomics examines the individual components of the economy.
Macroeconomics originates from the Greek word 'macros,' meaning big. This branch of economics is concerned with the economy as a whole. Key areas of interest in macroeconomics include a country's unemployment rate, changes in prices of goods (inflation), and national income (often referred to as GDP). Macroeconomics seeks to answer questions such as the impact of an increase in money supply or the factors driving economic growth over time. In essence, macroeconomics studies the economy in its entirety.
Despite their distinct focuses, microeconomics and macroeconomics are closely intertwined. Understanding macroeconomics often requires a foundational understanding of microeconomics. For example, to determine how GDP changes when interest rates decrease (a macroeconomic question), one must first analyze how individual consumers and firms respond to such a drop. This involves considering if consumers will save less or if firms will increase investments. By comprehending the behaviors of individual agents, economists can gain a better understanding of the overall economy.