basic difference between macroeconomics and microeconomics

In addition, microeconomic theory is commonly used when evaluating investment opportunities as it focuses on supply and demand, and other forces that determine price levels. It also enables the interpretation of equity and distributional issues as well as the ability to provide social-economic analysis of the market equilibrium and define possible policy interventions. Often referred to as behavioural economics, it provides an understanding of the role of personal and business decisions in evaluating potential outcomes.Ī strong background in microeconomic theory is extremely valuable for professionals in banking and finance as it provides in-depth insight into market failures and government policies in various socio-economic realms. It also takes into account taxes, regulations, and government legislation. Microeconomics is the study of decisions made by people and businesses regarding the allocation of resources and the prices of goods and services. Of course, the global economy does not exist in a vacuum – it is influenced by numerous factors. Having a holistic view of the economy is incredibly important as it provides broader context for strategic decisions and enables a clear understanding of topical issues such as economic growth, sustainability of pensions, optimal taxation, unemployment and banking regulation. Macroeconomic analysis is used to craft economic and fiscal policy and is applied to many areas, including the labour market, monetary theory and central banks objectives.

Macroeconomic theory uses a top down approach, which facilitates the understanding of the overall economic framework in which countries and governments operate. Let’s take a look a closer look at how: The big picture Econometrics uses mathematics and statistical inference to turn theoretical economic models into useful tools for policy making.Īll three play a key role in strategic decision and policy making within banking and finance. Where microeconomics is concerned with individual units in the economy, such as a consumer or company, macroeconomics is an aggregate analysis of the economy as a whole. Econometrics, which seek to apply statistical and mathematical methods to economic analysis, is widely considered the third core area.

Macro and micro are not the only subfields within economics. However, as the theory has evolved over time, the distinction between the economy as a whole and the influencing factors within it – known as macro and microeconomics respectively – are now institutionalised, individual disciplines within economic theory. It was simply ‘economics’ - the study of how human societies organise the production, distribution, and consumption of goods and services. Before the 1930s Great Depression in the US, economists did not widely distinguish between the economy as a whole and how people and businesses make decisions on a smaller scale.

Basic difference between macroeconomics and microeconomics