Economics is the study of the way people organize themselves to sustain life and enhance its quality. Individuals engage in four essential economic activities: resource maintenance, production of goods and services, distribution of goods and services, and consumption of goods and services. Resource maintenance means tending to, preserving, or improving the natural, produced, human, and social resources that form the basis for the preservation and quality of life. Production is the conversion of some of these resources into usable products. Distribution refers to the sharing of products and resources among people, while consumption refers to their final use. Economists study how individuals engage in these activities and how their social coordination is achieved.
Often, for the convenience of organizing curricula, the study of economics is broken down into two parts: Micro- and macro-economics. Where microeconomics emphasizes the economic activities and interactions of individuals and particular organizations (such as businesses, households, community groups, non-profits, and government agencies), macroeconomics looks at how all of these activities join together to create an overall economic environment at the national—and often the global—level.
For example, when you seek paid work in your chosen field, your success will depend in part on both micro and macro-economic factors. On the microeconomic side, you will need to have prepared yourself for the work—invested in your own “human capital,” an economist would say. You will need to find a particular business or other agency that can use your skills—or find direct buyers for your services, if you decide to strike out on your own. You will want to find work that gives you a combination of job satisfaction, income, and benefits that you like.
But will employers in general be hiring? Some graduating classes are unlucky, and flood the job market just as the national economy is “going sour”—that is, entering a recession. No matter how well-prepared you are, finding a job can be tough in that economic environment. And if you do find a job, how far will your paycheck go to meet your standard-of-living desires? If you start working during a period of high inflation, rising prices will quickly erode the purchasing power of a fixed paycheck. Macroeconomic conditions also affect personal debt. If you are like most students these days, you will be paying back loans for a number of years. The higher the prevailing real interest rates in the economy, the more costly this borrowing will be. Your own economic well-being will also be tied to global issues such as trade flows and currency exchange rates—especially if you go to work for a business that does a lot of importing or exporting, or you send money back to relatives in a home country. If you are lucky, all these factors will fall in your favor. If you are not…well, then you can join the chorus blaming “the economy” for your troubles.
Such macroeconomic issues are considered “short run,” – economists refer to these issues as having to do with macroeconomic “fluctuations.” Sometimes unemployment is high and sometimes it is low, and the same goes for inflation, interest rates, trade deficits and exchange rates.
Other macroeconomic issues have to do with the long run. Can you expect your standard of living 50 years from now, or the standard of living of your children, to be higher or lower than what you enjoy now? Are you living in a society where everyone has a chance to develop themselves, or are extremes of wealth and poverty getting more pronounced over time?
Macroeconomics seeks to explain an especially interesting phenomenon: The fact that bad things can often happen on a national or global level even though virtually no individual or microeconomic-level organization wants or intends them to happen. People generally agree that high unemployment, persistent high inflation, and destruction of the natural environment, for example, are bad things. Yet they occur nonetheless.
Microeconomics and macroeconomics are terms that are applied rather loosely, covering or emphasizing different topics as times and circumstances change. Many issues have both macroeconomic and microeconomic aspects. For example, imposition of a sales tax will affect microeconomic behavior – people may consume less, or shift their patterns of consumption towards untaxed items – but it also affects government revenues, which are an important element of macroeconomic analysis. No one speaks of “the microeconomy” because there are too many sub-national economic systems of varied sizes that are studied in the field of microeconomics. However the term macroeconomy is used to refer to a national economic system. People also speak of the global economy, meaning the system of economic rules, norms, and interactions by which economic actors and actions in different parts of the world are connected to one another. Economic actors (or economic agents) include all individuals, groups, and organizations that engage in or influence economic activity. As the global economy has become an increasingly important part of the experience of more and more people, it has become appropriate and important to include its study within introductory economics courses. By default, it falls into the field of macroeconomics.
- Global Development And Environment Institute, Tufts University
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