Microeconomics vs Macroeconomics: Key Concepts Explained
Differences Between Microeconomics and Macroeconomics
Macroeconomics
Macroeconomics studies the general economic situation of a country. It includes a comprehensive study of all economic sectors. Economists use macroeconomics as a tool to determine the current state of an economy.
Microeconomics
Microeconomics studies the behavior of individual economic agents, considering the decisions made to meet their specific targets.
Macroeconomic Indicators
Inflation
Inflation is the comprehensive and sustained increase in the general price level (NGP) of goods and services in an economy. If prices decrease, it is known as deflation.
- Negative effects: Harms individuals with fixed incomes and savers; benefits debtors while hurting creditors; reduces competitiveness.
Measuring Inflation: The CPI
The Consumer Price Index (CPI) determines the general price level by tracking goods and services frequently purchased by consumers. It is calculated by assembling a representative basket of goods, finding average prices, and conducting a Household Budget Survey.
Production Levels
- GDP (Gross Domestic Product): The monetary value of all final goods and services produced within a country during a specific period, regardless of the source of production factors.
How is GDP Calculated?
- Expenditure Method: GDPmp = C + I + G + (X - M)
- Income Method: PIBcf = Employee payroll - Gross operating surplus
- Production/Value Added Method: GDPmp = PIBcf + Taxes - Subsidies
Other Economic Metrics
- GNP (Gross National Product): The monetary value of all final goods and services produced using domestic inputs, whether located within or outside national borders. GNP = GDP + rfne - RFEN.
- National Income (NI): The sum of wages paid to domestic factors of production over a period of time.
- Disposable Personal Income (DPI): The income actually available for spending. DPI = NI - Social Security payments + Transfers.