The Difference Between Microeconomics and Macroeconomics, and Their Respective Roles in Every Economy
When talking about both the global and domestic economy, especially hot topics like tariffs, outsourcing of labour and deficit spending, terms like ‘exchange rate’, ‘inflation’, and ‘interest rates’ are at the centre of the debate. These terms are all part of the field of macroeconomics, a word stemming from the Greek prefix ‘makro’ meaning large, combined with the Greek words ‘eco’ meaning “home” and ‘nomos’ meaning “accounts”. What exactly is macroeconomics, and where is it visible at work in the market? The truth is, it’s had a major effect on Canada and the world’s handling of the pandemic.
Macroeconomics analyzes the behaviour of an economy taking into account every aspect of it, and assessing it as an entity. At the beginning of the pandemic, (from March 15th to September 26th, 2020), the Canadian federal government offered the Canadian Emergency Response Benefit (CERB) to all eligible Canadians that lost their source(s) of income due to the first wave of the pandemic and its subsequent lock-downs. This decision is an example of macroeconomics within a country, as the lawmakers and economists behind it assessed the unemployment rates and lack of income to determine a course of action.
In March of 2020, the Government of Canada also released the full Canada’s COVID-19 Economic Response Plan, which included $212 billion dollars in direct support for Canadian businesses. The intention of the CERB as well as other federal benefits was to provide Canadians and their businesses with tangible financial aid to make up for business and wages lost due to the pandemic. With the supports outlined in the COVID-19 Economic Response Plan, individuals, families and firms were able to make financial decisions with the knowledge that they will be receiving money monthly.
These financial decisions made, (e.g. purchasing domain hosting for a business moving online, purchasing home work-out equipment for a family) would be examples of microeconomics, defined as the study of individuals and firms as well as their decisions and uses pertaining to resources.
The Greek prefix ‘mikro’ means “small”. Despite its translation, microeconomics is a vast topic that also engages the relationship between the individuals and firms within that economy. The true purpose of microeconomics is to take a slice of an economy, and study it on a small scale. Microeconomics encompasses supply and demand: the amount of individuals purchasing a product communicate demand, which sets a quantity of supply for the firm. The relationship between individuals and businesses is crucial to the market, as is the relationship between fellow businesses, constituting competition.
Despite their contrasting natures, microeconomics and macroeconomics often interact and intersect: macroeconomic changes in the global or national economy can affect how consumers spend their money, changing their relationship with retailers. The truth is, macroeconomics and microeconomics can be considered opposites: macroeconomics treats an economy as a whole, a sum of its pieces, while microeconomics focuses on those individual pieces and their interactions with each other.
Yet, the two terms have much in common. They both incorporate how financial entities deal with their money and assets, and how they can stabilize themselves in the market by managing resources efficiently. They both ultimately deal with the behaviour of money in the market, how to anticipate and control the outcome; both are vital pieces of the national and international economy.
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