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What Is Financial Macroeconomics?

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  • Written By: Kesha Ward
  • Edited By: C. Wilborn
  • Last Modified Date: 19 November 2016
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Financial macroeconomics is a branch of economics that involves analyzing averages in financial indicators such as investments, consumption, and income. It also examines economic systems by considering individual economic units, such as the prices of specific products. Financial macroeconomics is primarily concerned with the variables that can be observed to indicate systematic behavior patterns in spending and consumption. These patterns can be analyzed independently to point out any strains or weaknesses in the economy.

The economy is affected by a number of factors, and financial macroeconomics takes into consideration all the factors that could cause the economy to grow or contract over time. It also acknowledges the causes of short-run changes in the economy. For example, there may be changes in unemployment numbers or home sales when there are changes in the political landscape. In anticipation of changes due to impending policy changes, individuals will make adjustments to spending and saving.

Financial macroeconomics can be contrasted to microeconomics. Microeconomics considers the economic decisions made by an individual or firm, while financial macroeconomics takes into consideration the larger picture of how economic decisions collectively affect the economy. A general understanding of microeconomics can also help to better understand financial macroeconomics.

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For example, understanding microeconomics can help analysts to understand why a change in interest rates can lead to changes in gross domestic product. Lowered interest rates affect and influence consumer purchasing decisions, as well as decisions about how much money individuals are able to invest. The impact of lowered interest rates can be evaluated at both the firm and household level. In this case, financial macroeconomics would explain the impact on consumers. Once the factors that change consumers' purchasing behavior are understood, it is easier to understand consumers' large scale relationships within the economy.

Inflation is a key factor in economics; for example, when inflation increases, the price of raw materials may also rise and cause an increase in costs to the consumer. Businesses will attempt to offset increased production costs by marking up the price of the product. Financial macroeconomics is used to examine consumer behavior that results from the increase in price. When the price of one good increases, in most cases, consumers look for less expensive alternatives. For example, when the cost of gas increases, there is typically an increase of sales of fuel efficient vehicles.

Individuals are exposed to financial macroeconomics in everyday life. Issues surrounding the economy appear in the news on a daily basis. News stories that cover topics such as inflation, economic growth, changes in employment, and trade performance with partner countries are all macroeconomic issues affecting the global economy.

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