Lesson preview · Intro To Macro
What Macroeconomics Studies
~10 min · Free to read
On March 23, 2020, the US stock market hit its pandemic low. Over the next two months, the unemployment rate jumped from 3.5 percent to 14.7 percent — the sharpest spike since records began. Real GDP collapsed at a 31 percent annualised rate that spring. Then, less than 18 months later, output was back above its pre-pandemic level.
That story isn’t a sequence of personal choices. It’s macroeconomics — the study of the whole economy at once. The same four numbers appear in every news cycle:
Microeconomics zooms in on one person, one firm, one market. Macroeconomics zooms out. The crucial part: the whole is more than the sum of its parts. Sometimes what’s smart for one person sinks everyone if everyone does it at once.
Key Term
Macroeconomics
The study of the economy as a whole, using aggregate measures like total output (GDP), the unemployment rate, the inflation rate, and interest rates.
Key Term
Microeconomics
The study of individual decisions — one consumer, one firm, one market. Micro asks how the price of avocados gets set; macro asks why all prices, on average, rise 3 percent a year.
Macro keeps an eye on four big aggregate numbers. Almost every headline you read about the economy is one of these moving:
Tip
The four macro vital signs
- Real GDP — the size of the economy, after stripping out inflation.
- Unemployment rate — the share of the labour force who want work and can’t find it.
- Inflation rate — how fast the average price level is rising.
- Interest rates — the price of borrowing money, set largely by the central bank.
When all four are healthy together, the economy hums. When one breaks loose, every model in this course is trying to explain why.
Trap · Common Misconception
The whole is not just the sum of the parts
If one household saves more, that household gets richer. If every household saves more at once, total spending falls, firms cut production, jobs disappear, and incomes drop. This is the paradox of thrift — what’s rational for one is destructive for all. Macro is full of these aggregation surprises.
Check yourself · no marks
Which of these is a macroeconomic question? (a) Why did Apple raise iPhone prices by 50 dollars? (b) Why did US prices rise 8 percent over 2022?
Commit to one first. Guessing and being wrong beats reading the answer cold.
Worked Example
Walk through the 2020 COVID recession as a five-step macro story. What shock hit first, what aggregates moved, and how did policy respond?
Practice · 1 / 4
Which of the following is best classified as a macroeconomic question?
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