Question

Everyone has a sense of how the macroeconomy is doing. Is it a mistake to go off of our own experience about what may be happening overall in the United States? How might individual experience lead one astray in thinking about the macroeconomy? How might it help? How do you determine how you think the macroeconomy is doing?

Answer 1

Different individuals face different constraints that can be financial as well as non financial. The perspective of the economy from the view of a poor individual economic agent is drastically different from the view of a rich economic agent. Assume that for example, the shipping industry is experiencing a boom. Those working in the shipping industry might experience arise in their nominal wages because of the expansion. this will increase their standards of living and they will believe that the economy is experiencing an economic growth. They might start consuming more.

At the same time the economy may not be experiencing such an expansion overall, implying that people working in other industries are receiving the same nominal income. Their consumption remains same and hence the standard of living.

This shows that it would be incorrect to go off of our own experience about what is happening in the country. what is happening for one or few individuals may not be true for the economy as a whole. This perception however can help in the formation of the micro economy where only a particular sector is investigated.

For an analysis of the macro economy we must look at other factors influencing the entire economy. This includes the general unemployment rate, inflation rate, economic growth rate or the GDP growth rate, etc. These factors give a broader picture of the economy and not instead of individual sectors.