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Macro and Microeconomics

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The economic life of a nation may be studied from two points of view. We may either start by looking at one person or one firm, and considering why they behave as they do; or we may look at the problems as seen by a government wishing to control an economy, considering the matter as a whole.

The first process is MICROECONOMICS - this is considering the small scale working of economic laws. Here we see a man faced with choice of ways to spend his limited money, or an individual business deciding its pricing policy. It is a branch of economics that studies how the individual parts of the economy, the household and the firms make decisions to allocate limited resources, typically in markets where goods or services are being bought and sold. Analyzing certain aspects of human behavior, microeconomics shows us how individuals and firms respond to changes in price and what they do at particular price levels.

Microeconomics also deals with the effects of national economic policies (such as changing taxation levels) on individuals and firms.

The second is MACROECONOMICS - here we consider the large issues and problems of a government trying to raise the standard of living of its people. It is a branch of economics that deals with the performance, structure, behavior and decision-making of the entire economy.

Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance.

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