Macroeconomics is the study of the economy as a whole—as distinguished from microeconomics, which is the study of individual consumers, firms, industries, and markets. Microeconomics focuses on the individual economic decision maker (or agent) without attempting to take into account the full range of interactions that take place between one decision maker and another. Thus, for example, a study of the excise tax on cigarettes would consider the effect of that tax on the demand for cigarettes, but would not attempt to account for the effects of that tax on the demand for watermelon and the feedback effects on the demand for cigarettes.

When we do macroeconomics, we don’t focus on cigarettes or watermelon. But we do focus ...

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