I don’t know if you noticed or not, but it seems that there has been a lot of discussion around the subject of economics. Right now, specifically it is about the U.S. Economy and how it will fare amid COVID-19.
Given all the talk and the fact that I really enjoy the study of Economics, I thought it would be valuable to embark on a series of blogs that address this very topic. I hope you enjoy! At the end of each blog I will provide a link for you to provide feedback or if you have a specific topic you’d like me to address.
Let’s start with what Economics is. I want to start here because there are some misconceptions out there (of which I will address too).
Economics is the study of how we choose to allocate limited resources, why we allocate them in a particular way, and the consequences of those decisions. It analyzes the production, distribution and consumption of goods and services. In today’s environment there are four elements that make up economic activity; they are: land, labor, capital and enterprise.
Economics is not the study of the stock market, money or how to run a business. Many times the performance of the stock market or the value of an investment becomes a reference point as to the state of the economy. While the stock market and certain statistics may be a prediction of the health of the economy, it is important to recognize that in and of itself, it is just ONE variable.
There are two disciplines of economics: macroeconomics and microeconomics.
Macroeconomics studies the part of economics that is concerned with the aggregates and how they interact in the economy as a whole. It focuses on broad subjects such as growth, inflation, interest rates, unemployment, government deficits, levels of exports/imports and taxes. When there’s a discussion about the Federal Reserve raising interest rates or the national unemployment rate is 7.5%, the discussion is about a macroeconomic topic. In a future blog I will discuss how different policies can affect the variables looked at to assess the macroeconomic health of an economy.
Microeconomics focuses on the individual level within the economy. It studies decisions made by individuals and businesses regarding the choices, decisions and allocation of resources and prices of goods and services taking into account taxes, regulations, and government legislation. In a future blog I will discuss several key principles involved in microeconomics.
Microeconomics and macroeconomics should not be viewed as separate subjects, but rather recognize they complement each other. In economics, the decisions of individual businesses are based on the health of the macroeconomy. For instance, a business is more likely to increase the number of workers they hire if they experience indications that the overall economy is growing. Consequently, the performance of the aggregate economy ultimately is contingent on the decisions made by individuals, households, and businesses.
As mentioned above, please feel free to provide feedback or if you have a topic you’d like me to address via https://maximawealth.com/contact/ .
My next ECON101 discussion will address how Fiscal and Monetary policy can affect the variables we look at when assessing the macroeconomic health of an economy.