Macroeconomics

Macroeconomics looks at the big picture. Rather than focusing on one household or company, it studies the combined behaviour of millions of decisions across a country or the world.

Its main questions include: why do economies grow, and why do they sometimes shrink in recessions? What causes inflation? Why are some people unemployed? How do interest rates, government spending and taxes affect the economy? Why do exchange rates change?

Key measures used in macroeconomics include gross domestic product (GDP), the inflation rate, the unemployment rate and the balance of trade.

Macroeconomics also studies policy. Central banks use monetary policy, mainly by setting interest rates, to keep inflation stable. Governments use fiscal policy, through spending and taxation, to support the economy. For example, during a recession, a central bank may cut interest rates and a government may increase spending to encourage businesses and households to spend more.