Introduction
In general, economics is the study of how agents (people, firms, nations) use scarce resources to satisfy unlimited wants. Macroeconomics is the branch of economics that concerns itself with market systems that operate on a large scale. Where microeconomics is more focused on the choices made by individual actors in the economy (individual consumers or firms, for instance), macroeconomics deals with the performance, structure and behavior of the entire economy. When investors talk about macroeconomics, discussions of policy decisions like raising or lowering interest rates or changing tax rates are discussed.
Macroeconomics is ‘non-experimental’, macroeconomics cannot conduct controlled scientific experiments (people would complain about such experiments, and with a good reason) and focuses on pure observation. Because historical episodes allow diverse interpretations, many conclusions of macroeconomics are not coercive. What causes unemployment? What causes inflation? What creates or stimulates economic growth? Macroeconomics attempts to measure how well an economy is performing, understand how it works, and how performance can improve.
Financial markets coordinate the economy’s saving and investment in the market for loanable funds. The market for loanable funds is the market in which those who want to save supply funds and those who want to borrow to invest demand funds. Loanable funds refers to all income that people have chosen to save and lend out, rather than use for their own consumption. The supply of loanable funds comes from people who have extra income they want to save and lend out. The demand for loanable funds comes from households and firms that wish to borrow to make investments. As interest rates rise, more individuals will be tempted into providing loanable funds.
Three types of government policies that affect saving and investment are savings incentives, investment incentives and government budget deficits and surpluses....