Topic > Case Study of Micro and Macroeconomics - 1486

The study of money, capital, the banking system, wealth, the production and consumption of goods, the science of choices and the analysis of movement in the economy overall: trends in production, prices and unemployment is called the economy. Economics is further divided into two main parts: micro and macroeconomics, where “macro” means large and “micro” small. An important distinction is made between macroeconomics, which studies the economy as a whole, such as national income, gross income, domestic product (GDP), overall inflation and unemployment rates, balance of payments and exchange rate and so on – and also examines a country's economic relations with the rest of the world. In other words, macroeconomics takes a much broader view by analyzing economic performance. Its purpose is to explain the formation of prices in the different markets seen in the economy, determining the balance between goods and services. Although these 2 economic studies seem different, they are actually interdependent and complement each other, because a macroeconomic process consists of a series of microeconomic processes (Sloman & Garrat, 2013). Both macro and microeconomics should be studied together to understand how businesses operate and earn revenues, as a process the entire economy is managed and supported.2.2 Equilibrium in the EconomyEquilibrium means a position of stability. In macroeconomics, equilibrium in the economy will occur when the planned aggregate demand for goods and services equals the aggregate supply of these products (Gillespie, 2011). To analyze how equilibrium occurs in an economy, one can first use the circular flow of income which shows how income flows through the economy between businesses and households: The figure When it occurs, in most cases it is obtained through an increase in public spending or a reduction in taxes. So the level of unemployment is expected to fall as demand for more production increases and businesses will need more labor. These methods together are known as expansionary fiscal policy, which is the most proven method for closing the deflationary gap (Ejim, 2015).2.3 GDP and its effects Gross domestic product (GDP) is the monetary value of all goods finished and services produced and provided within a country in a specific time period. It includes all private and public consumption, government spending, investment, and exports minus imports that occur within an exact country (Begg & Ward, 2013). The role of GDP in macroeconomics is important, because an example analysis of GDP collected over a distinct period will allow stakeholders such as governments, organizations and individuals to understand the behavior of the business cycle for a particular country. GDP is divided into real and nominal, where nominal GDP is a figure that does not take into account the effect of inflation, but real GDP is adjusted to take into account