What is macroeconomics? A short introduction

so what actually is macroeconomics for those not familiar with any economics it can seem incredibly confusing and yet it is macroeconomics that dominates the news whether it's in our newspapers on the radio or on the television it's crucial that if you want to grasp anything in economics you really should understand what macroeconomics is if you to ask the layperson what they think of in terms of a word association with economics and macroeconomics in particular they may come up with things like inflation money trade taxes banks and unemployment indeed these are all to do with macroeconomics

for those perhaps with a working knowledge of macroeconomic terms a similar game may reveal words such as stimulus monetary policy economic growth gdp central banks and budget deficits indeed all these words are associated with macroeconomics but what ties them together is really the key question that we'll be answering in this video over the next few minutes therefore we're going to cover three key areas firstly we're going to look at the fundamental economic divide between microeconomics and macroeconomics that will help us understand what macroeconomics actually is more realize it's actually a fake divide secondly we'll look

at the economic players and actors who is it that we talk about when we talk about macroeconomics if the economy is our stage who are these players and actors and what is their story thirdly we'll have a brief summary of what is macroeconomic policy and we'll cover what governments try to achieve and why before we get started though please do like this video and subscribe to my channel it really helps me and it will help other people find this video too if you think it's useful thank you any student of economics will be told probably

on their first day that the discipline of economics is split in two there is microeconomics and there is macroeconomics but how do the two relate and what does this tell us about macroeconomics well to show this let's first think about microeconomics people are often much more comfortable talking about microeconomics it's easier to understand and to relate to our own life experiences after all microeconomics is about how we as individuals make decisions it's about how we buy things what we do for work or employment it's about firms and businesses about how they set prices how they

make and produce things it makes sense it directly relates to the world around us macroeconomics though that's a different story that can seem very confusing with little in common with our experience in our daily lives the clue though is in the name if micro is small then macro is big and actually that's really what it's about they are very closely related if microeconomics is about one firm and producing macroeconomics is about all firms in the economy and total economy-wide production if microeconomics is about how we act as individual consumers macroeconomics is about total consumer behavior

if microeconomics is about individual choices we make about whether to be employed or not then macroeconomics is about the labor market for the whole country and that really is all that macroeconomics is it is the aggregation of microeconomic decision making in act two of as you like it shakespeare wrote all the world's a stage all the men and women merely players well if our economy is the stage then who are the players who are the stars and who's playing a supporting role well it turns out there are actually five roles and only two of them

are true stars let's go through each of them in turn it turns out the first starring role is you it's me it's all of us after all economics is a social science and it's about how we act as individual consumers and how we decide to supply our labor to firms so individuals play a starring role and without them there would be no economic show economists often refer to these individuals as households understanding that sometimes in terms of how we consume and act we operate as small family units and they are the key first starring role

our second starring role goes to firms and businesses at its most fundamental level economics is the study of how we as human beings satisfy our unlimited wants and desires in doing this firms and enterprises have a key role to provide the goods and the services that we so desperately need it is the entrepreneurial activity of these firms that is key in our story and in return for these goods and services we provide them with our labor now we come to the supporting roles and our first role goes to government they tax and they spend and

their role in markets is fundamental in shaping the economic policy over the 20th century and up to date they have grown massively and they take an increasingly large share of our national income so supporting role 1 goes to governments supporting role 2 goes to foreign countries or more specifically to trade with them just think of your iphone or your mobile phone and you'll get a sense of the amount of flows across international borders for goods and services and how things are produced all over the world and shipped to your local store so they are available

it is imports and exports that are key here in the balance of trade so supporting role 2 goes to foreign countries and trade finally we come to supporting role 3 and this goes to banks and financial institutions what we find is that money is absolutely key to the functioning of an economy money to an economy is like oil to an engine it lubricates the whole system and makes it work smoothly and effectively fundamentally banks take the savings we place with them and lend money on to firms and businesses who want to invest the interest they

receive allows them to pay us interest on our savings and for them to make a profit so supporting role 3 goes to banks and financial institutions so now we have our cast we have households and individuals we have firms and entrepreneurs we have government we have foreign trade and foreign countries and finally we have banks and financial institutions but if the economy is our stage and these five players are actors then what is the story about well in that way there is a whole host of things and although there is no comprehensive list i can

give you a list that probably will contain much that you are familiar with all of these items relate in some way or another to some or all of the five players above and things that they will include would include inflation exchange rates technology unemployment taxes bank lending consumer spending production economic growth and resources government spending lending money borrowing money creating money government budgets jobs and much more the list could go on these are the fundamental things that macroeconomists study they study the five players and then they study the items that we've listed above if there

is one aspect of macroeconomics that we're all familiar with it's the coverage that it gets on the tv in the newspapers and on the radio that's macro economic policy what you notice when you follow macroeconomic policy is it's closely related and intrinsically linked with politics governments elected by us want to show us that they are in control of the economy and the last thing they want to do is to upset us that leads to demonstrations and worst of all for them losing power but there is a fundamental question here can governments actually control the economy

to what extent do the policies they adopt actually make a difference in the short term or even the long run when things are going well they will tell you they can run the economy and our collective economic success is definitely due to their macroeconomic policies when things take a downturn however it's always a different story so macroeconomic policy then in the broadest sense is set by politicians seeking to please their electorate and retain power this means that they will prioritize the issues that are most important to us the issues that are most likely to help

them stay in office there are many different issues of course but students starting their study of macroeconomic policy are usually told there are four key policy objectives these are controlling inflation improving economic growth ensuring low unemployment and finally promoting foreign trade and we'll take a brief look at all of these in turn policy objective one is controlling inflation inflation is when there are general price rises in the economy and people dislike this not only does it create uncertainty but as prices rise you can buy less with any given amount of money you've actually got your

money actually becomes worth less policy objective 2 is improving economic growth over the past 200 years the world economy has been transformed by an upswing in the growth rate of our economies in our productive capacity and with growth comes more prosperity which means longer healthier lives for us all policy objective 3 is ensuring low unemployment if there is one thing that makes people or more importantly voters unhappy it's being without a job governments are therefore always keen to create good well-paid employment finally policy objective 4 is promoting foreign trade our standing in the world and

crucially how cheap or expensive it is for us to import from abroad the goods and services we want depends upon how successful we are at trading with our neighbours both near and far so we have our four main macroeconomic policy objectives controlling inflation improving economic growth ensuring low unemployment and promoting foreign trade but when thinking about these it's important to remember two final points firstly it's crucial to remember that there are other objectives governments may wish to achieve for example over recent years as concern over climate change has grown governments are increasingly looking to decarbonize

their economies they may have other objectives too like reducing income and regional inequalities secondly many economists will argue that it is difficult if not impossible for politicians to achieve all of their macroeconomic policy objectives that's because some of the objectives are actually in conflict with each other and consequently politicians face difficult choices and trade-offs for example a well-known conflict is that reducing unemployment may lead to higher inflation and vice versa what this means is that as joseph stiglitz the nobel prize-winning economist has said is that macroeconomics can never be devoid of politics it involves fundamental

trade-offs and affects different groups differently so let's summarize what we have learned over the past 10 minutes but before we do that a quick reminder please like the video and subscribe to my channel it really helps me and it helps others find this video too but that's not all if you get any value from this video then please consider supporting me on patreon for as little as a dollar you can support me to make more of these videos as well as get access to extra features but if you can't afford that right now it's just

enough to like subscribe or share this video thanks what we've seen over the past 10 minutes is that macroeconomics is built upon the foundations of microeconomic decisions the individual decisions we all make about what to buy and when to work when added together comprise macroeconomics looking in total we also see that macroeconomists like to analyze the economy by looking at the role and impact of five key players households and individuals firms and entrepreneurs government foreign trade and foreign countries and banks and financial institutions these together are our core caste of economic actors finally governments seek

to control the economy to further either their own interests or to please us so that we vote for them in that regard macroeconomic policy is usually focused on some or all of the following controlling inflation enhancing economic growth ensuring low unemployment and promoting foreign trade thank you for watching please remember to like subscribe and share this video thanks