Macroeconomics_and_microeconomics

Economics: Macro- and Microeconomics

needs and wants нужды, потребности

survival выживание

advanced countries развитые страны

unemployment безработица

to affect оказывать воздействие, влияние; затрагивать

to increase / decrease (taxes, prices) увеличивать; усиливать / уменьшать, сокращать

performance of businesses результаты деятельности предприятий

decline (in the economy) спад, упадок

to encourage поощрять, содействовать

to reach a balance достигать равновесия

Gross Domestic Product (GDP) валовой внутренний продукт (ВВП)

GDP per capita ВВП на душу населения

currency валюта

a unit of the currency денежная единица

purchasing power покупательная способность, платёжеспособность

to result in smth иметь результатом, приводить к…

trade deficit внешнеторговый дефицит, дефицит торгового баланса

trade surplus активное сальдо торгового баланса; активный торговый баланс

internal / interior внутренний

external / exterior внешний

at a (high / low) price по (высокой / низкой) цене

interest rate банковский процент, процентная ставка

household домашнее хозяйство, домохозяйство

to complement дополнять

raw materials сырьё

bottom line итог; суть дела; определяющий фактор

Economics is a social science which studies production, distribution and consumption of goods and services. It is a study of the ways in which people apply their knowledge, skills, and efforts to the gifts of nature in order to satisfy their material needs and wants. Economics limits itself to the study of the material aspects of live, and while it is true that man cannot live by bread alone, it is equally true that he cannot live without it. A fundamental problem in economics is that of survival, and we must examine how people have solved or are trying to solve this problem. In the more advanced countries this may seem a very insignificant problem. In many other countries, however, there is no stability of human existence.

Macroeconomics is the branch of economics that deals with an economic decision or behavior of an economy as a whole; for example, the problem of inflation, level of unemployment, and payment of a deficit.

Macroeconomics analyzes how different factors affect economy. It considers the actions of consumers (how much and what they are buying), decisions made by governments (whether they are increasing or decreasing taxes), the structure of the population (including age and income levels), the performance of businesses and much more.

Below we explain the main features of macroeconomics and how they affect the growth, or decline, in the economy.

Supply and Demand

The supply is an amount of goods or services that is available to be used in the economy. Demand is the need or desire that people have for particular goods and services. Demand effects supply, and supply effects demand. If the supply is higher than the demand then the product’s price will decrease to encourage customers to buy more. If there is a lower supply than demand then the product price will be increased because the supplier knows that consumers will pay more to ensure they get the product. Therefore the supply and demand is constantly trying to reach a balance between the right price and the amount sold and supplied.

Growth

If more goods (or services) are being demanded, then manufacturers will produce more. For governments growth means increased income from taxes which they can spend on improving the country and further stimulate the economy. Moreover, a growing economy is more likely to attract investors – again increasing the money being put into the economy.

Gross Domestic Product (GDP)

Gross Domestic Product is the total value of all goods and services produced in a country, in one year, except for income received from abroad. Often the GDP is divided by the number of people in the country to give the GDP per capita so that different countries can be compared as to the standard of living within the countries.

Inflation

Inflation is the general rise in the price of goods and services. It is influenced by the value of the currency and the purchasing power of consumers. If the price of a good rises then fewer of these goods can be bought with a unit of the currency.

Unemployment

Unemployment is when a person does not have a job and when he / she has actively sought work within a certain period of time. An unemployed person has less income and cannot spend much money on products and services. This results in lower demand and reduces the potential for growth. Moreover, the governments often have to pay unemployed individuals to ensure that they can pay for the basics such as food and shelter. It leads to the reduction of investments within the country.

Trade Balance

The trade balance looks at the levels of exports compared to imports. A country has a trade deficit when it buys more goods from other countries than it sells to foreign countries. A trade deficit means that more money is leaving the country than being brought in. The opposite is a trade surplus. The balance is affected by the demand from foreign countries for the country’s products and the demand for products internally which are being produced externally.

What is the difference between macroeconomics and microeconomics?

Microeconomics is the branch of economics that studies the behavior of individual firms, their relationship with the market, at what price a commodity is set, how much of a commodity should be produced, how an individual uses their income to maximize satisfaction, and how the price of each commodity in the market is affected by the forces of supply and demand.

Macroeconomics can be best understood in contrast to microeconomics which considers the decisions made at an individual or firm level. Macroeconomics considers the larger picture, or how all of these decisions sum together. An understanding of microeconomics is essential to understand macroeconomics. To understand why a change in interest rates leads to changes in real GDP, we need to understand how lower interest rates influence decisions, such as the decision of how much to save, at the firm or household level. When we understand how an individual will change their behavior we will understand the large scale relationships in an economy.

Although "micro" means “small” and "macro" means “large”, the two shouldn't be separated by the size of an economy or firm. While these two branches of economics appear to be different, they are actually interdependent and complement each other as there are many coinciding issues between the two fields. For example, increased inflation (macro effect) would cause the increase of the price for raw materials for companies which will affect the final product's price charged to the public.

The bottom line is that micro- and macroeconomics should be studied together in order to fully understand how companies operate and earn revenues and thus, how an entire economy is managed.

1. What issues is economics concerned with? What fundamental problems does it study?

2. What economic factors does macroeconomics study?

3. Explain how the following features of macroeconomics affect economic processes:

• supply and demand;

• growth;

• GDP;

• inflation;

• unemployment;

• trade balance

4. What is the field of study of microeconomics?

5. What is the difference between macroeconomics and microeconomics?

6. Why do the two branches of economics complement each other?

Ex.1 Complete the sentences with suitable prepositions. Consult the text if necessary.

1. Macroeconomics deals ___ economy-wide phenomena.

2. Macroeconomics is concerned ___ maintenance of full employment and price stability.

3. Microeconomics focuses ___ how an individual's behavior and decisions affect the supply and demand ___ goods and services.

4. In practice, individuals and groups can directly affect ___ the supply and demand.

5. This will result ___ needing more employees.

6. We agreed to buy the bike ___ a lower price.

Ex.2 To show the difference between macroeconomics and microeconomics refer the phrases to either of them.

Key:

1. the study of individuals and business decisions; mi

2. supply and demand and other forces that determine the price levels seen in the economy; mi

3. the behavior of entire industries; ma

4. how GDP is affected by unemployment rate; ma

5. economics of health care or agriculture or labor; mi

6. what determines the spending of all consumers; ma

7. how the spending decisions of individual households are made; mi

8. the decision to build a new factory by a single firm; mi

9. what determines the capital spending of all firms combined; ma

10. why there have been layoffs in a specific industry; mi

11. what determines total unemployment in the economy; ma

12. distribution of total production among individual consumers, firms, and industries; mi

13. examines firms both as suppliers of products and as consumers of labor and capital; mi

14. forecast future economic activity; ma

15. attainment and maintenance of full employment and price stability; ma

Ex.3 Decide if you agree with following statements. Explain your choice.

Key:

1. Macroeconomics deals with global questions only.

2. Macroeconomics means economics as a whole because it asks more questions than microeconomics. F

3. Macroeconomics analyzes activities of families and large firms. F

4. Macroeconomics focuses on national and international economic trends. T

5. Macroeconomics considers individuals both as suppliers of land, labor, and capital. F

6. Key microeconomic fields are price theory and labor economics. T

7. Individuals can’t directly affect the supply and demand of products and services. F

8. When the price is increased the demand will decrease. T

9. If there is a balance deficit the government must reduce the demand for the imports. T

10. When prices are decreased the demand will decrease too. F

11. It is possible to eliminate inflation entirely. F

12. The problems studied by microeconomics are in terms of broad totalities. F