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The Importance of Studying Macroeconomics by Ordinary People
Macroeconomics is a subset within the study of economics which regards large-scale and general economic factors, and is the study of the economy as a whole. The study of macroeconomics regards topics such as a nations employment, total supply and demand, national income, inflation/deflation, total investments and savings, interest rates, overall consumption, and fluctuations in price levels. These topics serve as aggregates which are studied to determine the averages of a nations economy and predict future outcomes. In a sense, while microeconomics is the study of individual fish, macroeconomics is the study of the pond as a whole. Macroeconomics studies the character of the pond, regardless of the organisms which compose it. Thus, macroeconomics is important, both practically and theoretically, as it benefits the average person through making him/her more conscious of the economy he/she is within. Through studying macroeconomics from a consumer, governmental, and business aspect, an individual who knows how to effectively identify, comprehend, analyze, and approach various market situations can be produced
Macroeconomics serves extremely useful to individual consumers, including me, in our day-to-day lives. For example, the concept of Gross Domestic Product (GDP) can be seen as one of the most important topics for consumers to understand. If consumers know that the GDP is increasing, it informs them that the economy is doing well and they can expect side effects such as higher employment rates, higher salaries, incomes, and wages, and higher interest rates. Thus, if the average person is looking for a job, he/she is aware that his/her chances are not as good when the GDP is falling as when it is rising. Additionally, individuals can utilize the GDP level to determine if it is a good time to spend generously, especially on luxurious and costly goods, or spend cautiously and rather focus on saving money. Also, if the average person did not know that interest rates increase hand-to-hand with the GDP, we would not be able to effectively plan and organize our finances, especially when it came to paying our loans in time for expensive items like houses and cars, which could diminish our financial reputation. In addition, another very important macroeconomics concept which can help people is the unemployment rate. If I know the unemployment rate is high, I will be aware that the economy is moving downwards, so I will have to constantly push my persistence and seek further in terms of employment since it will be more difficult to find a job than if the unemployment rate was lower. However, if the unemployment rate is low, I will know to pursue more job offers and openings because my opportunities and chances of becoming employed are better. Another extremely important concept for the average consumer to be aware of is the inflation rate. If the inflation rate is high and increasing, it gives me insight on the fact that the prices of several goods and services are bound to increase; thus, I can forecast that my purchasing power will fall and my standard of living will generally decrease. The cost of gas prices, the cost of food and beverage prices, the cost of housing, borrowing money, the real value of savings, and treasury bonds or notes yields are all susceptible to change with inflation. Although inflation is typically associated with being bad, if I know what it is and how to interpret the inflation rate, I can plan and reorganize my financial plan to counteract or smoothen inflations high prices effect. If the average consumer has no clue regarding inflations side effects, they can very easily lose track of their spending habits and may be spending significantly more than they think, leading to future consequences. Since the inflation rate is not the only method of determining future changes in the cost of living, learning topics such as the Consumer Price Index, the Producer Price Index, and Merchandise Trade Balance can help interpret which direction the economy is heading towards and predict future consumer purchasing power. Collectively, all these indicators can provide a good standpoint of whether my standard of living will increase or decrease in the future as well as help develop a promising financial plan. Lastly, if the average person and I are well aware of the current stage of the business cycle, there are several outcomes one can predict. For example, during expansion, I know that inflation will occur and prices will rise, employment levels will be high, stocks and bonds will yield more value, and the currency will be depreciated. However, if I know the economy is contracting, I can predict that prices may deflate, unemployment will rise, stocks and bonds will yield less, and lower interest rates due to lack of currency circulating in the economy. Through several economic indicators and macroeconomics concept, several consumers, like me, are well aware of how to predict and interpret the economic market, which will always help us in the long run.
By studying and knowing macroeconomics, the average person gains insight regarding how the government utilizes macroeconomic indicators to approach and manage a nations economy. The main issues most economies suffer through are related to output, total income, employment level, and overall prices. Since these factors can all be measured using statistics, it can be facilitated to analyze their effects on the economy and create solutions for existing issues. Thus, macroeconomics is very important for average individuals in the sense where it allows them to know why the government creates and imposes new economic policies. For example, if the government recognizes a pattern of the unemployment rate increasing every time there is a decrease in effective demand, they can impose new policies to increase consumption, output, income, and investment, which are all factors that increase effective demand. By establishing a mutual connection of macroeconomics knowledge from both the government and consumer side, policies can be imposed effectively where needed and help indicate the current market situation to the average person. This not only increases individuals standard of living and reduces the harshness of the current market situation, but also helps reassure to individuals that the government is effectively serving its purpose in the market. Furthermore, macroeconomics serves of high significance to average individuals because it allows the government to evaluate a countrys performance based on its national income. By constructing data figures of the national income, governments can forecast a countrys economic activeness and better understand how income is distributed among several groups within the economy. If an individual knows how to interpret national income distribution data, they can understand how wealth is distributed within their economy and further establish a mutual understanding with the government regarding passing progressive or regressive tax policies because a better distribution of wealth in the economy inevitably helps society as a whole. Also, depending on the national incomes statistics, the Consumer Confidence Index is driven in a positive or negative direction, which can help the average person decide whether to save or spend money. Governments are also very concerned with economic growth in general, so by using macroeconomics and economic data to find the determinants of growth (high output, high income, low unemployment rate, high GDP), the government typically makes plans to improve on each of these determinants, primarily through new policies. If individuals are aware of how the economy is driven, how to interpret various forms of economic data, and the determinants of high economic growth, they can easily identify the economys health through economic indicators and further understand the logic behind the governments decisions as well as be more accepting of them to improve societys standard of living in the long run. Also, since the fluctuation of moneys value is common through inflation and deflation, governments can help stabilize this fluctuation through monetary policies (increasing or decreasing moneys supply) or fiscal policies (adjusting government spending). By understanding the impacts of inflation and deflation, individuals, like me, can identify what fluctuation state we are in and better envision the needs for such policies because they help us adapt and diminish the harsh downsides of an unstable market. As a result, the study of macroeconomics serves an important tool because it allows the average person to understand why the government makes certain decisions and indirectly thrive off of the government effectively creating a budget, deciding taxes, generating interest rates, and imposing new policies.
Any average person will also profit from studying macroeconomics through a business standpoint because he/she sees a different perspective on how to approach the market. By knowing macroeconomics, average people learn that whenever a business grows from the inside, it will always need to find a way to accommodate that growth. For example, businesses are well aware of the fact that when the interest rate falls, consumers will take advantage of this and spend more money since their overall payments on large items, such as houses and cars, will be minimized. By recognizing this habit of consumers and the effects of a negative change in interest rates, businesses will expand in production due to an increase in demand and a better chance to profit. If this is the case, individuals can predict that business will be paying its workers more and also be looking to expand its workforce. Furthermore, price fluctuations will continuously change businesses profits, causing fluctuations in businesses payroll and workforce, so specific time periods will be more beneficial to workers and unemployed people than others. Thus, if average people are aware of certain determinants, such as interest rates and price fluctuations, of companies profits, they understand why and when businesses will increase workers salaries or provide more employment opportunities. Also, understanding the unemployment rate from a corporate level is important because it allows the average person to better interpret the economic indicator. If unemployment increases, consumer spending will fall and businesses will start producing less output because there is less demand on their current output, leading to lower profits. Thus, the average person can better predict lower wages, higher chances of being fired, or a low likelihood of finding employment when aware of a high unemployment rate and vice versa if the unemployment rate is low. Also, studying macroeconomics is important because it helps the average person understand that when it comes to price fluctuations (inflation and deflation), since there is a change in demand due to a change in price, the output and production of certain items will constantly be adjusted and different from before as businesses are changing their economic strategies. As a result, average individuals will not be as surprised when their usual commodities quantity and general availability fluctuates from time-to-time and can predict goods quantity by analyzing the inflation rate. In addition, by understanding how businesses utilize the business cycle to come up with good strategies, consumers gain a greater depth of knowledge regarding how to approach the market. Each stage of the cycle impacts businesses products demand in different ways. For example, when the business cycle is in its expansion phase, businesses products have a greater demand, so they are expected to make more profit. An individual who knows macroeconomics would be aware that since businesses are currently growing, they want to increase output, and inevitably seek more employment and can afford to pay its workers greater wages. Thus, the average person can take advantage of this whether it be through more job applications/pursuits or predicting the possibility of a better salary. However, if the business cycle is in its contraction phase, consumer demand will be less, so businesses will make less profit and will have to reduce payroll through firing workers and decreasing production. This phase is important to know because it allows the average person or I to predict that we may be laid off, our salary may decrease, or the necessity of our labor is not in great demand. In general, studying macroeconomics from a business standpoint provides a blueprint on how businesses approach success in a specific market and develop strategies to use in both domestic and global markets. As a whole, macroeconomics allows average individuals to understand the economic choices businesses make and possibly utilize this information for their benefit in the economic market or business-related environments.
In conclusion, how the economy is doing and its overall performance matters to everyone, whether it be the government, businesses, the average consumer, or me. When splitting up macroeconomics into a business, government, and consumer perspective, an individual is no longer gaining narrow-minded-based knowledge, but rather a full-scope of the economy. By looking at key parts of the economy and important macroeconomics topics such as the unemployment rate, the inflation rate, national income, total output, and GDP from a government, business, and consumer viewpoint, one gains knowledge into how the economy is functioning. Macroeconomics provides individual consumers, like me, businesses, and the government insight into our economic markets and a chance to plan ahead, which is why macroeconomics is so important- it allows people to interpret current information and translate that into creating a strategy or method to approach the future. By understanding the vast, yet beneficial study of macroeconomics, simple individuals like me can take the appropriate measures by construing the economys health and maneuvering that into our favor to maximize our standard of living.
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