What is the importance of microeconomics for macroeconomy?
What is the difference between macro and microeconomics?
Microeconomics is the study of decisions made by individuals and companies.
Macroeconomics, on the other hand, deals with higher state and government decisions.
Microeconomics, macroeconomics and their wide range of underlying concepts have often been discussed in the literature.
The field of study is huge, but a small overview should show you what the respective science covers:
Microeconomics studies decisions that people and companies make regarding the use of resources and the prices of goods and services.
Accordingly, taxes and regulations by the government are also included.
The microeconomics is focused on supply and demand, as well as on all other forces that determine the price level in the economy.
For example, this science tries to find out how a particular company can maximize its production and capacities so that prices can be reduced and competitiveness increased.
In contrast, macroeconomics studies the behavior of the economy as a whole, in terms of entire industries and economies.
This examines macroeconomic phenomena, such as gross domestic product (GDP), as well as its effect on the unemployment rate, gross national income (GNI), growth rate and price level.
An example: In this context, it is examined how an increase or decrease in net capital export affects the total capital of the country.
The effect of GDP on the unemployment rate can also be examined.
Although the two fields of study appear completely different, they are interdependent and complement each other, as there are many overlapping topics between the two fields.
For example, an increased inflation rate (macro effect) makes raw material prices more expensive for companies, so that in the end this also has an effect on the product price.
Ultimately, both sciences pursue different approaches: Microeconomics examines “from bottom to top” (“bottoms-up approach”), while macroeconomics analyzes “from top to bottom” (“top-down approach”).
Nonetheless, both approaches are fundamental tools for any financial professional.
They should be learned in combination in order to understand overall how companies work and generate income, or how ultimately the entire economy is controlled and maintained.
Magic square and hexagon: What is it all about? A magic square shows how economic policy can guide developments in the financial markets in a variety of ways. > read more
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