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Macroeconomic Questions

Table 6-1 lists some typical questions that involve economics. A microeconomic version of the question appears on the left paired with a similar macroeconomic question on the right. By comparing the questions, you can begin to get a sense of the difference between microeconomics and macroeconomics.

Microeconomic Questions	Macroeconomic Questions
Should I go to business school or take a job right now?	How many people are employed in the economy as a whole this year?
What determines the salary offered by Citibank to Cherie Camajo, a new MBA?	What determines the overall salary levels paid to workers in a given year?
What determines the cost to a university or college of offering a new course?	What determines the overall level of prices in the economy as a whole?
What government policies should be adopted to make it easier for low-income students to attend college?	What government policies should be adopted to promote employment and growth in the economy as a whole?
What determines whether Citibank opens a new office in Shanghai?	What determines the overall trade in goods, services, and financial assets between the United States and the rest of the world?

Table :

TABLE 6-1 Microeconomic versus Macroeconomic Questions

As these questions illustrate, microeconomics focuses on how decisions are made by individuals and firms and the consequences of those decisions. For example, we use microeconomics to determine how much it would cost a university or college to offer a new course, which includes the instructor’s salary, the cost of class materials, and so on. The school can then decide whether or not to offer the course by weighing the costs and benefits.

Macroeconomics, in contrast, examines the overall behavior of the economy—how the actions of all the individuals and firms in the economy interact to produce a particular economy-wide level of economic performance. For example, macroeconomics is concerned with the general level of prices in the economy and how high or how low it is relative to the general level of prices last year, rather than with the price of one particular good or service.

You might imagine that macroeconomic questions can be answered simply by adding up microeconomic answers. For example, the model of supply and demand we introduced in Chapter 3 tells us how the equilibrium price of an individual good or service is determined in a competitive market. So you might think that applying supply and demand analysis to every good and service in the economy, then summing the results, is the way to understand the overall level of prices in the economy as a whole.

But that turns out not to be right: although basic concepts such as supply and demand are as essential to macroeconomics as they are to microeconomics, answering macroeconomic questions requires an additional set of tools and an expanded frame of reference.