4. Two Sides of the Same Coin: How They Connect

Microeconomics and macroeconomics are not separate subjects but rather two different ways of looking at the same economic system. Macro-level outcomes are the direct result of millions of micro-level decisions being made every day.

A perfect example of this connection can be seen in Gross Domestic Product (GDP), a core macroeconomic measure.

• One of the largest components of a nation’s GDP is Personal Consumption (C), which represents all spending by households. This is a macroeconomic figure.
• However, this national consumption number is simply the sum of all the individual purchasing choices made by millions of households. Analyzing how and why a single household makes its spending decisions is a classic microeconomic topic.

The connection works in the other direction as well. Macroeconomic policies created by the government can have a significant impact on individual microeconomic choices. For instance, a government decision to change tax laws (a macro policy) directly affects the disposable income of households, which in turn influences their personal spending choices (a micro decision).

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