Economics and How the World Works (Macro)
In his fantasy novel Men at Arms: The Play, Terry Prachett wrote:
"The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness."
While this may be an extract from a fantasy novel, the message it conveys is very much real and relevant. But different people will feel differently about the message.
In other words, this may trigger some to re-evaluate the way they perceive money; others might show disdain toward those who are considered to be wealthier or better off; yet others may show compassion toward those who struggle to make ends meet; and so on.
Whatever camp you find yourself in, it’s important to first understand the basics of economics, how money works in the world, and how societies tend to perceive it. Then, you can revisit your thoughts on Vimes’s reasoning with a more critical understanding of (macro)economics as a whole.
And that’s precisely what this article’s purpose is!
What Is Economics?
According to Investopedia, economics is defined as
a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices about how to allocate resources. Economics focuses on the actions of human beings, based on assumptions that humans act with rational behavior, seeking the most optimal level of benefit or utility. The building blocks of economics are the studies of labor and trade. Since there are many possible applications of human labor and many different ways to acquire resources, it is the task of economics to determine which methods yield the best results.
In essence, economics shows us how economies function and how agents interact. In an economics context, agents denote ”actors” within a model of an aspect of the economy. For instance, buyers and sellers are said to be agents/actors in the models of a single market.
Economics also has many subdisciplines such as:
- Principles of Macroeconomics
- Principles of Microeconomics
- Applied Economics
- Maths for Economists
- Statistics for Economists
- Intermediate Macroeconomics
- Intermediate Microeconomics
- Agricultural Economics
- Comparative Economic Systems
- Consumption and Households
- Development Economics
- Economic Growth
- Economic History
- Environmental & Transport Economics
- European Economics
- Experimental Economics
- Financial Economics
- Game Theory
- Health Economics
- Heterodox Economics
- History of Economic Thought
- Industrial Economics
- International Economics
- Labour Economics
- Law and Economics
- Managerial/Business Economics
- Mathematical Economics
- Monetary Economics
- Political Economy
- Public-sector Economics and Public Choice Theory
- Regional and Urban Economics
- Specific economies/countries
- Structural and Institutional Economics
- Transition Economics
Macroeconomics is one of the two main branches of economics (the other one is microeconomic). Macroeconomics
studies an overall economy on both a national and international level, using highly aggregated economic data and variables to model the economy. Its focus can include a distinct geographical region, a country, a continent, or even the whole world. Its primary areas of study are recurrent economic cycles and broad economic growth and development.
Contemporary economics research suggests that macroeconomics started with John Maynard Keynes, an English economist. His ideas and theories about governmental policies and market behavior have been perceived as instrumental to the way we understand economics. Since then, several schools of thought have developed.
- a social science;
- concerned with the allocation and distribution of resources;
- said to explain how economies in societies work;
- about making decisions and choices;
- divided into different subtypes including, but limited to:
- Positive economics: This type of economics deals with the quantification, description, and the explanation of economic phenomena. It determines what it is. Positive economics used to be known as value-free economics. What’s more, it contrasts normative economics.
- Normative economics: It advocates what ought to be. This type of economics expresses normatives - so-called ideologically prescriptive opinions and judgments aimed at economic development and projects, certain scenarios and statements, and so on. Also, normative statements can’t really be verified or tested because they don’t really reflect object data analyses. Normative economics in a way serves to prescribe solutions.
- Applied economics: As the name itself suggests, applied economics refers to the application of econometrics (applying statistical methods to economic data) as well as economic theory in various scenarios and settings. It’s said to address problems across a wide range of fields such as: economic history, demographic economics, public economics, agricultural economics, education economics, business economics, industrial economics, labor economics, health economics, monetary economics, financial economics, development economics, engineering economics, and so on. The main goal of applied economics is to strengthen national policy-making and the overall quality of business practices.
- Rational economics: This kind of economics deals with specific guidelines which assist us in better understanding social and economic behavior. Rational economics is linked to the rational choice theory which analyzes three separate factors: the invisible hand, self interest, and rational actors. The theory states that people are dependent upon individual calculations in order to arrive at rational decisions which are also for their highest good.
- Behavioral economics: Such economics focuses on the effects of cognitive, cultural, emotional, social, and psychological factors in the decisions made by both individuals and organizations. Behavioral economics typically apply aspects from fields such as neuroscience, psychology, and microeconomic theory.
- Mainstream economics: This kind of economics refers to all the theories and overall knowledge usually taught by universities. These theories are generally accepted by the majority of economists. Such a school of economic thought is regarded as orthodox. Mainstream economics is usually defined by its topics, assumptions, and methods.
- Heterodox economics: Heterodox economics contrasts the mainstream (orthodox) economics. It basically includes all the knowledge and theories which are outside of the mainstream neoclassical approaches. These include: evolutionary, feminist, social, institutional, ecologist, socialist, Austrian, and Marxian economics.
- influenced by a lot of factors such as resources of labor, land, capital, public policies, the overall economic growth, and so on;
- more than just explaining the concept of money (this is basically just the tip of the iceberg); it deals with other areas, sectors, and issues such as:
- supply and demand;
- market failure;
- government policies;
- international trade;
- taxes, and so on.
- just about understanding how rich people can afford “stuff”;
- only about the monetary and the financial system of the world/society;
- about following crowds or allowing other people’s influences to diminish your own;
- set in stone or about following a methodology or a strict scheme - it’s more about being able to connect the dots, see things from a higher perspective, and be able to think a few steps ahead;
- pure mathematics, statistics and numbers;
- only relevant to economists, researchers, and/or scientists - in fact, each person can benefit from gaining an insight into economics and how the world works (or doesn’t, for that matter);
- something you can learn by heart - it requires a much deeper understanding of things which are connected to one’s age, knowledge, perspective, commitment, and so on.
The History of Economics
Economic writings date way back from the early Greek, Chinese, Roman, Arab, and Mesopotamian civilizations. Even Hesiod, a Boeotian poet (one of the regional units in Greece), has been described as the first economist.
That said, whenever we talk about economics and their history, many are interested in “real economics”. In other words, they wish to learn about the history of economics as we understand it today.
There’s a lot to be said and written about this, but we’ll try to cover the basics so that you can get a more general understanding.
Many consider Adam Smith, a Scottish economist and a philosopher, to be the “father of economics”. He’s referred to as “the father of capitalism” too. He was very critical of mercantilism (an economic practice which involves maximizing exports and minimizing imports), and in general was considered very controversial in his time. His book the Wealth of Nations (1776) is said to have laid the foundations of the modern way of understanding economics.
And while Smith strongly believed in the power of capitalism, not everybody agreed. Namely, Karl Marx thought otherwise. He believed capitalism led to inequality and greed.
The appearance of Marxist (Marxian) economics, which has its roots in the teachings of Karl Marx, descends from classical economics. Some of the most remarkable works in this period is Marx’s Das Kapital (1867), which focuses on the theory of surplus value and the labor theory of value.
Later on, neoclassical economics was further discussed and explained in Jean-Baptiste Say’s Treatise on Political Economy, or The Production, Distribution, and Consumption of Wealth (1803). Thus, economics was defined as the study of production, distribution, and consumption of wealth.
Now, moving onto another period - the time of Keynesian economics. Keynesian economics comes from John Maynard Keynes, or more specifically, his book The General Theory of Employment, Interest, and Money (1936). This book is said to have given birth to macroeconomics as a separate field.
There have been many other economics, theorists, and eminent names responsible for the development of economics. Some of the most well-known ones are: the Chicago School of Economics, the Freiburg School, the Austrian School, post-Keynesian economics, the Stockholm School, and so on.
Each school of thought has contributed to economics and has helped the discipline be what it is today - multifaceted and dynamic.
Why Is Economics Important?
What makes economics so significant?
Why do we need economists?
Can a society function without a standardized economic system?
What would happen if an economic system collapsed? Can it collapse at all?
Such questions matter not only to economists and/or science - but to “ordinary” people, too. In other words, all of us may have these questions pop out of nowhere, but whether we have the answers to them or not, is a completely different story.
First and foremost, economics is important because it helps us understand the behavior of individuals, but also companies, frims, organizations, governments, and so on. It also helps us comprehend why resource allocation matters and how it should be done (or how it shouldn’t be done, for that matter).
More importantly, though - it shows us how societies distribute such resources and how considerate it is toward those who have fewer of these resources.
Economics also influences our everyday lives. This includes things such as facing unemployment, paying taxes, interest rates, bank accounts, the job market, and so on.
Industries and organizations of all sizes have to fully rely on economics, so its contribution and impact are more than just valuable. Finally, it’s worth noting that
The ultimate goal of economic science is to improve the living conditions of people in their everyday lives. Increasing the gross domestic product is not just a numbers game. Higher incomes mean good food, warm houses, and hot water. They mean safe drinking water and inoculations against the perennial plagues of humanity.
How To Develop Economics?
When we talk about how to develop economics, we actually refer to the ways to improve economic growth. Economic development is understood as a process through which the economic wellbeing of a region, nation, society, and individuals are made better by implementing certain strategies and plans.
That said, this is such a complex question and it includes a lot of planning, research, and development, but we’ll try to go over the most important aspects to it.
There are many ways to boost economics, but all of them are based on specific plans and achievable goals. For instance, governments should strive to attain price stability, offer employment for all of its citizens, and provide sustainable and environmentally conscious growth. Such efforts are closely linked with monetary, fiscal, and tax policies, proper regulation of all financial instructions, fair trade, and so on.
Governments should also make sure there’s decent job creation and retention through the use of efficient business models, marketing strategies, workforce development, and so on.
Also, there should be detailed programs which focus on infrastructure and providing services such as cost-effective housing, crime prevention, highways, parks, affordable education, and so on.
Finally, proper international development and collaboration between nation states shouldn’t be neglected. In other words, countries partnering up with each other and offering support (both moral and financial) is sometimes key in the individual economic development of each country.
Examples of Economics in Everyday Life
According to Eurostat, and according to the International Labor Organization guidelines, an unemployed individual is someone generally aged 15-74, without any work during working days (i.e. Monday-Friday), is available to start working within the following 2 weeks, and has been actively looking for employment during the past 4 weeks.
That said, the concept of unemployment is always changing. It may change for the better, when a society's standard improves and job opportunities seem to pop up more than what’s been the norm for that specific country; or, they might change for the worse - where some external factors may impact a society’s unemployment rate. In other words, the number of unemployed people is constantly fluctuating.
Take COVID-19, for instance. When we discuss the pandemic- we’re discussing impact not only on specific societies and their current standard and challenges; we’re discussing global impact. The COVID-19 pandemic is said to have a major impact on jobs and it comes with huge economic consequences.
Now, let’s take a look at the world's highest unemployment rates at the end of 2019 (all of them are said to have increased during the pandemic). Even the USA, which isn’t on this list, is said to have experienced an increase in unemployment at the wake of the pandemic - it was at 3.5% at the end of February in 2020—the lowest rate in half a century—but quickly rose to 14.7% in April.
Here are the countries with the highest unemployment rates:
- Lesotho: 28.2%
- Eswatini: 26.5%
- Occupied Palestinian Territories: 26.4%
- Mozambique: 24.8%
The following ones refer to the countries with the lowest unemployment rates:
- Qatar: 0.1%
- Cambodia: 0.3%
- Niger: 0.4%
- Belarus: 0.5%
- Lao People's Democratic Republic: 0.7%
- Myanmar: 0.8%
- Bahrain: 1.2%
- Tonga: 1.2%
- Thailand: 1.4%
- Kuwait: 2.0%
Now, let’s check out the unemployment rates for the world’s largest economies:
- Japan: 2.4%
- India: 3.5%
- Germany: 3.6%
- United Kingdom: 3.9%
- United States: 4.1%
- China: 4.8%
- Canada: 5.9%
- France: 8.6%
- Italy: 10.4%
- Brazil: 11.6%
Types of Unemployment
When we talk about unemployment it’s important to understand there’s much more than just simply understanding the concept and its effect. In other words, it’s also about comprehending the source of it, which is where the different types of unemployment come into play.
For instance, many distinguish between so-called “voluntary unemployment”, which means the unemployed person decides not to accept a specific job position at the going wage rate and “involuntary unemployment”, which occurs when an unemployed person is willing to work, yet there’s not an opportunity for them to do so. The former is a bit more problematic, as many times it’s seen to denote individuals who are lazy and/or otherwise not willing to show work commitment. However, it’s also worth noting that those individuals may be rightfully unwilling to work if the wage is objectively lower than it ought to be (in terms of cost of living, the difficulty of the work, and the person’s qualifications).
Let’s take a look at the other types of unemployment.
Classical unemployment happens when real wages are being kept above the marketing-clearing wage rate. This then makes the number of job seekers exceed the actual number of vacancies. This type of unemployment is also known as real-wage unemployment because it denotes the real wages being way too high.
Some common causes for this type of unemployment are trade unions that bargain for wages above the equilibrium, or when deflation occurs, which is in essence a period of falling prices.
Cyclical unemployment (also known as Keynesiasn or deficient-demand unemployment) happens when there’s not enough aggregate demand (AD) in a society to provide job positions for everybody who wishes to work.
The demand for most services and goods is said to fall, which means less production is necessary, and so, in turn, fewer workers are needed, too.
This type of unemployment usually increases during recessions, but falls during economic expansions.
This type of unemployment occurs when there’s a mismatch between the jobs currently available on the market and the skills of the individuals looking for a job. Structural unemployment might be further worsened by persistent cyclical unemployment.
What this means is that if the economy suffers from very low aggregate demand (AD) for a long period of time, then many unemployed individuals could become demotivated and their working skills might get rusty. Plus, even when the economy recovers and the number of job openings increases, these workers may not fit the job vacancies available.
Technological unemployment occurs when people lose their jobs due to technological changes. This means that machines are introduced and this leads to lesser need for human labor. Technological unemployment is basically a key type of the one we’ve just discussed - structural unemployment.
Frictional unemployment occurs in the time period when an individual searches for a job or is in transition from one job to another one. It’s also referred to as “search unemployment”.
The positive thing about this type of unemployment is that it shows that workers are seeking better job positions voluntarily. This, in turn, provides businesses with a higher number of qualified professionals to pick from.
Frictional unemployment is natural, and it occurs even in the most developed economies. Workers who leave their jobs voluntarily and new workers who have just entered the workforce add to the overall frictional unemployment.
Hidden unemployment is a term used to denote individuals who are jobless, but aren’t included in the official unemployment figures. Such individuals usually include immigrants, people who have no proper documentation, and even those who haven’t gone to employment bureaus. These official unemployment figures include individuals who have no job, but are actively looking for one. The term also refers to individuals who are underemployed.
Disguised unemployment is a term that’s used interchangeably with hidden unemployment.
Long-term unemployment denotes a type of unemployment which lasts for more than a year. This unemployment is important because it signals potential problems in the economics of a country or region - for instance, that the labor markets might be operating inefficiently.
The rates of long-term unemployment are said to be much lower in countries that in recent years have seen higher GDP growth rates.
How to approach this?
- What are some useful unemployment-insurance benefits? Do you think people actively looking for a job should get the same benefits as the ones who are not looking for a job at all in a given moment? Why?
- How long should unemployment support last? Should it stop after some time, even though an individual may be still seeking a job or should it continue until that person manages to find a job?
- Should job seekers be given the chance to volunteer somewhere? Why? Why not?
- According to you, what’s the biggest cause of unemployment in your own country?
- Have you ever been unemployed? Why? Was it because you couldn’t find a job or you were laid off and then you were between jobs? Or was it because you were unhappy at your workplace? How did not having a job feel for you? For instance, did it make you question your own skills and qualifications, or did you blame the market, society, capitalism and the country you live in along with their standard of living?
- It’s clear that unemployed individuals face financial challenges. That said, what are some emotional challenges they’re faced with? How do you suggest they could cope with them? In other words, how should unemployed people maintain motivation and handle potential anxiety and distress? Should they even seek help, if their unemployment status remains unchanged for a longer period of time?
- How can unemployed individuals keep their brain engaged? How can they remain productive while being on the lookout for a job? Should they find something to do at home such as gardening, cooking, and so on? Maybe they should help peers and/or engage in reading and activities they didn’t have the time for while they were working?
- Unemployment is said to make people more susceptible to smoking, alcohol, cardiovascular disease, deteriorated mental health, depression, drug abuse, and so on. Some argue it even leads to crime - which makes sense considering these people can’t earn in any legal manner. How can these be “avoided” when one is facing unemployment and simply a lack of opportunities?
- According to a 2015 study, unemployment causes 45,000 suicides a year worldwide. What can governments do about it? How can they lessen the struggle unemployed people are faced with (apart from the welfare and unemployment benefits, of course)?
- When older people are laid off, oftentimes they face ageism, that is, many employers don’t wish to hire them because of their age. What’s the best way of addressing this issue? How can this be surpassed?
Sam Ewing said that “inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” In essence, inflation causes a decline in the value of money: it means that “your money won’t buy as much today as you could yesterday”.
So, if the prices of goods increase, then you’ll be able to purchase fewer goods for the same amount of money (just like the hairstyle example we gave).
That said, when we talk about inflation, it’s important to understand the type of inflation being discussed. In other words, these so-called types are classified depending on what causes the inflation to occur in the first place.
Cost-push inflation occurs when an increase in prices occurs as a result of an increase in the cost of production. Then there’s demand-pull inflation, which is when an increase in prices happens due to the increase in aggregate demand and the companies increase the prices because there’s a shortage of goods.
There’s also built-in inflation. Built-in inflation is said to be connected to adaptive expectations - it’s the notion that individuals expect the present-day inflation rates to continue increasing.
On the whole, inflation can be viewed both positively and negatively. This depends on one’s individual viewpoint as well as the rate of change. For instance, those that have a lot of properties and some tangible assets may benefit from inflation because it will increase the value of the assets they possess.
On the other hand, individuals who hold cash will have a more negative outlook on inflation because it will destroy the value of their cash holdings.
Ideally speaking, an optimum level of inflation will require spending to some extent instead of just saving. This helps the overall economic growth.
How to approach this?
- What problems does inflation cause? Also, who benefits from inflation?
- Who should “handle” inflation?
- Can inflation be stopped?
- What are some issues when it comes to measuring inflation? Do some research if possible.
- The way you see it, do you think inflation has both positive and negative effects? Which ones do you agree with? Why?
- Can inflation be controlled?
- When we discuss inflation, can we talk about winners and losers? Why? Why not?
- What do you find confusing about inflation? For instance, the concept of gas prices increasing, but your house losing value is very puzzling.
- How does inflation affect your retirement planning?
- When does inflation become dangerous or catastrophic (hint: it’s usually linked with it turning into hyperinflation)?
Getting a degree
If you want to get a degree in economics, people immediately assume you’re after a high-paying job and a serious career. What’s more, even prospective graduates opt for this major with this thought in mind.
And while there’s nothing wrong with wanting to have a decent salary, that is, a high-paying job, it’s important to understand your actual job prospects, true interests, job passions, and your skills and potential qualifications.
Plus, there’s no guarantee you’ll land a high paying job right away (or ever). This isn’t supposed to demotivate you, it simply means that getting a specific degree isn’t always an indicator of how much money you can earn and/or what type of job you can find.
However, for those of you still keen on actual figures - we got you covered! According to the American Economic Association, here are the median annual wages for Economists in May 2018 and they include the top five industries which employ economists:
Finance and insurance
Federal government, excluding postal service
Scientific research and development services
Management, scientific, and technical consulting services
State and local government, excluding education and hospitals
Now, when it comes to getting a degree in economics, we need to be mindful of several things. First, you need to understand what this type of major means. In other words, choosing an economics major is a vast thing - but your studies and subjects will become more and more specific and specialized as your uni years go by.
It will include courses and subjects about microeconomics and macroeconomics, international trade, market outcomes, fiscal and monetary policy, and so on.
Of course, which courses you end up choosing will depend on the type of job you see yourself doing. Some of the most common career paths for an economics graduate are the following:
- financial risk analyst;
- financial planner;
- an economist;
- data analyst;
- investment analyst;
- economic researcher;
- financial consultant, and so on.
That said, many move on to a master’s degree. And while getting a master’s degree in economics is not essential for finding a nice job, many believe they can improve their skills and perfect their qualifications if they opt for it.
Also, individuals keen on pursuing an academic career eventually get a PhD, too. So, this is yet another possible career path.
Finally, economics has grown and developed since its beginnings, and now it’s closely linked to other subjects too, such as geography, law, public affairs, and sociology. This helps individuals fully comprehend the economic systems which exist nowadays, but also analyse things from different perspectives.
How to approach this?
If you’re the educator:
- What’s the fun thing about teaching economics?
- What’s the boring one?
- What’s the most challenging aspect of having to teach theory about something that’s so practical at the end of the day?
- Do you feel that the way you teach fully reflects the practical aspect of economics as a discipline? Can you do things better? What changes can you make as of today? What’s your main teaching philosophy?
- How can you engage your students more?
- Can you walk us through a typical lesson? Also, how do you usually prepare for your lectures?
- Why is economics education important?
- How do you assess your students’ knowledge about economics? Do you agree with the standard way of testing? If not, how do you approach this?
- Do you think your lectures encourage critical thinking in your students? How can you tell? Think about specific examples and reflect on them.
- What are some methods for teaching economics that you employ? Do you think there’s room for improvement?
- Do you encourage teamwork? When it comes to economics, what’s the best way of including teamwork as part of your lectures?
- What are some exciting teaching resources you can employ in your economics practice?
- As an educator, how can you show your appreciation for economics in the best possible manner so that it inspires your students?
- What skills does a future economist need to obtain during their university years? Do you think your teaching practice helps students work on these skills? More importantly, do you, yourself, possess these skills? If not, do you find that problematic?
- What does it mean to be an excellent professor in Economics? What qualities should you have as an educator? What kind of an approach? What type of a relationship should you nourish with your students? What attitudes and behaviors should you abandon? Which ones should you adopt?
- What’s the most fascinating thing about economics as a discipline? Have you managed to convey your “fascination” to your students? In what manner?
- How can you support more self-directed, informal learning which happens outside of classes? How can you be of assistance? And more importantly, should you?
- How do you handle comments such as “Economics is stupid”; “Economics is difficult”; “I think I’ll drop out”; “I don’t want to deal with this matter any more”, and so on? In case you haven’t had such comments, how do you handle negative feedback (if any)?
- It goes without saying that professors, apart from teaching, also engage in continuous learning. How do you expand your already existing knowledge of economics? What’s your source and what’s your preferred way of acquiring new information?
If you’re the educatee:
- Why would someone decide to study Economics? Do you think Economics is a difficult major?
- What’s so special about having a degree in Economics?
- What are your current job prospects? Do you think such a degree makes you employable? More importantly, what type of job are you personally attracted to? What else can you do if you decide not to become an economist?
- How should economics students be assessed? Do you think the traditional testing methods work well with this degree? Why (or why not)? If it were up to you to decide, what changes would you make?
- Do you think your current economics education is preparing you enough “for the real world” out there? If not, are you doing something to help yourself? For instance, do you engage in non-formal education such as seminars, webinars, online courses, and so on?
- How should universities ensure the qualities of their programs? In other words, how can you make sure you’re getting high-quality education and adequate preparation for the job industry you’re supposed to be a part of one day?
- Do you think you have the right skills to be a good economist? How can you develop your skills further?
- How do you embrace certain learning challenges? Do you ask help from your peers or professors? Perhaps both?
- Do you struggle to fully understand specific economics concepts and terminology? Do you think this is something that should be learned by heart, or fully understood in greater depth? How do you go about this?
- What qualities are you proud of? What are some things you may wish to change about yourself?
- How much of a role do your professors play when it comes to how receptive you are to the material you study? For instance, does a strict and more traditional professor discourage you from being more open-minded and creative? Does a detached professor make you feel disinterested in the material itself? If this happened, how do you motivate yourself to learn the material and prepare for exams?
- How do you feel about public policy issues? Is this something you believe you can contribute to? Can you handle complex problems?
- Once you graduate, do you think you should continue learning about economics and all the concepts associated with it? How will you approach this?
- As a (potential) economics student, do you agree with the following statement?
Economics degrees provide powerful insights into a huge range of real-life issues while opening the door to a very wide range of career choices. It’s a fascinating subject and a life-long interest that will enhance both your understanding of the world and your career opportunities whether you become a professional economist or not.
Famous Quotes About Economics
“Under capitalism the common man enjoys amenities which in ages gone by were unknown and therefore inaccessible even to the richest people. But, of course, these motorcars, television sets and refrigerators do not make a man happy. In the instant in which he acquires them, he may feel happier than he did before. But as soon as some of his wishes are satisfied, new wishes spring up. Such is human nature.”
“The inscrutability [of economics] is perhaps not unintentional. It gives endless employment to dialecticians who otherwise might become public charges or, at very worst, swindlers and tricksters."
“It’s true: greed has had a very bad press. I frankly don’t see anything wrong with greed. I think that the people who are always attacking greed would be more consistent with their position if they refused their next salary increase. I don’t see even the most Left-Wing scholar in this country scornfully burning his salary check. In other words, "greed" simply means that you are trying to relieve the nature given scarcity that man was born with. Greed will continue until the Garden of Eden arrives, when everything is superabundant, and we don’t have to worry about economics at all. We haven’t of course reached that point yet; we haven’t reached the point where everybody is burning his salary increases, or salary checks in general.”
"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
“Economics is a study of cause-and-effect relationships in an economy. Its purpose is to discern the consequences of various ways of allocating resources which have alternative uses. It has nothing to say about philosophy or values, anymore than it has to say about music or literature.”
“It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money - that's all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot - it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”
“...the ultimate goal of economic activity is to improve the welfare of people.”
“Governments are deemed to succeed or fail by how well they make money go round, regardless of whether it serves any useful purpose. They regard it as a sacred duty to encourage the country’s most revolting spectacle: the annual feeding frenzy in which shoppers queue all night, then stampede into the shops, elbow, trample and sometimes fight to be the first to carry off some designer junk which will go into landfill before the sales next year. The madder the orgy, the greater the triumph of economic management.”
“On the one hand, our economists treat human beings as rational actors making choices to maximize their own economic benefit. On the other hand, the same companies that hire those economists also pay for advertising campaigns that use the raw materials of myth and magic to encourage people to act against their own best interests, whether it's a matter of buying overpriced fizzy sugar water or the much more serious matter of continuing to support the unthinking pursuit of business as usual in the teeth of approaching disaster.”
Frequently Asked Questions (FAQ)
What’s the difference between macroeconomics and microeconomics?
We’ve already defined macroeconomics at the beginning of the article, so by dwelling on microeconomics more in this part, it’d be easier to differentiate between the two of them.
According to Investopedia, microeconomics is defined as
the social science that studies the implications of incentives and decisions, specifically about how those affect the utilization and distribution of resources. Microeconomics shows how and why different goods have different values, how individuals and businesses conduct and benefit from efficient production and exchange, and how individuals best coordinate and cooperate with one another. Generally speaking, microeconomics provides a more complete and detailed understanding than macroeconomics.
Overall, microeconomics focuses on individuals’ decisions (also companies’ decisions) to allocate resources of consumption, distribution, production, and so on. One of its main goals is proper analysis of market mechanisms which establish relative prices among services and goods.
All in all, microeconomics handles individuals and firms, whereas macroeconomics addresses the overall economic activity.
What are the major concerns of macroeconomics?
Macroeconomics is generally concerned with foreign trade, monetary and government fiscal policy, inflation and deflation, interest rates, unemployment causes and rates, and the growth of production output in the GDP (Gross Domestic Product).
It also looks at what causes recessions, expansion, booms, and depressions. Macroeconomics seek to understand what triggers major economic events and how they can be handled without drastic consequences. That said, if drastic consequences do occur, it seeks to understand how they can be prevented from happening again in the future.
The two major areas of macroeconomic research are short-term business cycles and long-term economic growth.
All in all, macroeconomics is said to deal with the structure, overall behavior, and performance of the economy on the whole.
What are some important acronyms in economics?
There are many “fancy” economics terms worth discussing, but below we’ll share some of the most significant acronyms and abbreviations in economics:
- AARCH: augmented autoregressive conditional heteroscedasticity
- ACAS: Advisory, Conciliation and Arbitration Service
- AC: advanced country
- ACT: advanced corporation tax
- ADAS: aggregate demand-aggregate supply
- AFBD: Association of Futures Brokers and Dealers (London)
- AGNP: augmented gross national product
- CD: Certificate of Deposit
- CEC: Commission of the European Communities
- CETA: Comprehensive Employment and Training Act
- c.i.f.: cost, insurance, freight
- CIS: cash incentive scheme
- ERM: Exchange Rate Mechanism
- FDI: foreign direct investment
- GDP: gross domestic product
- GSPS: generalized system of preference schemes
- HOBS: home and office banking systems
- IMF: International Monetary Fund
- IMM: International Monetary Market
- LTV: labour theory of value
- MFR: minimum funding requirement
- MLR: minimum lending rate
- MLM: multi-level marketing
- MRP: marginal revenue product
- PPB: planning, programming, budgeting
- PPP: purchasing power parity; public-private partnership
- PQLI: physical quality of life index
- PSDR: public sector debt repayment
- R&D: research and development
- ROW: rest of the world
- RSG: rate support grant
- SWOT: strengths, weaknesses, opportunities, threats ( business appraisal technique)
- UVI: unit value index
- VAR: vector autoregression
- VAT: value-added tax
- VECM: vector error correction model
- VAT: value-added tax
- ZBB: zero-base budgeting
- ZPG: zero population growth
Suggestions for Further Reading
Understanding economics and how the world works isn’t done solely by actually observing them. It’s actually oftentimes helpful to have your head buried in a book instead.
So, if you’re up for it, enjoy our suggestions!
- Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, by Kate Raworth
- Basic Economics: A Citizen's Guide to the Economy, by Thomas Sowell
- Why Nations Fail: The Origins of Power, Prosperity, and Poverty, by Daron Acemoglu and James A. Robinson
- Good Economics for Hard Times, by Abhijit Banerjee and Esther Duflo
- Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, by Abhijit Banerjee and Esther Duflo
- The Undercover Economist, by Tim Harford
- Boom and Bust: A Global History of Financial Bubbles, by David John Turner and William Quinn
- The General Theory of Employment, Interest and Money, by John Maynard Keynes
- The Soulful Science: What Economists Really Do and Why It Matters, by Diane Coyle
- The Economics Book: Big Ideas Simply Explained, by DK
- The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy, by Stephanie Kelton
- Advanced Macroeconomics (The Mcgraw-hill Series in Economics), by David Romer
- Macroeconomics for Professionals: A Guide for Analysts and Those Who Need to Understand Them, by Leslie Lipschitz and Susan Schadler
- Macroeconomics: Principles, Problems, and Policies, by Campbell McConnell
- Macroeconomics: Theories and Policies, by Richard T. Froyen
- Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, by L. Randall Wray
- Macroeconomics, by Paul Krugman and Robin Wells
All in all, understanding economics and its branches is important for every person because by doing so, we can also better understand how the world works. This may sound like an exaggeration, but it’s true. Plus, the more we’re able to comprehend the world, the better we’ll be at interpreting “our role” in the society we live in.
Now, if you’re interested in delving deeper, our course in macroeconomics will be of assistance.
Should you decide to join us, you can expect to learn a lot about:
- production and growth;
- international trade, exchange rates, purchasing power parity, and trade policies;
- the monetary system, monetary policy and monetary supply, and optimal reserve ratios;
- saving, investing, and the financial system;
- taxes, market failures, and incentives;
- supply, demand, and aggregate supply and demand models.
Ready to get engrossed in the world of (macro)economics?
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