One of the largest and most diverse topics in the financial universe is the enigma of Economics. What exactly is economics? The exact definition is often up for debate; however, many professionals define economics as the study of people’s choices with limited resources and unlimited wants. We all have many wants, but there are limited resources on earth so we must evaluate our values, needs and wants and make decisions about what things are worth to each of us. This is the basis of microeconomics: the study of decisions (as stated before) within a closed specified area.
A good example of microeconomics is a local business. Let’s say someone wants to start a local business. How about a restaurant? Well, they are going to have to evaluate the local scene first. If there are 30 other Italian restaurants in the town, then perhaps an Italian restaurant is not really what is being “wanted” by the public. You see, in a perfect market, there is mutual benefit from a business-customer interaction. The business gains monetarily (profit) and the customer gains either a superior product/experience than they could have made themselves or a product for cheaper (due to specialization within the business).
Macroeconomics is the study of large-scale economic factors, such as interest rates and how these affect national productivity. One might ask how interest rates really affect an economy? The answer is that it has a big effect! If interest rates are lower, businesses and people are more willing to take out loans and invest in things. Businesses and restaurants investing in their ventures mean better products or cheaper products for us as consumers. In addition, when we see that the interest rates are low and say, buy a car or a house by taking out a mortgage or car loan, all that spending goes toward speeding up the economy. In these ways and others, interest rates play a big part in macroeconomics.