Aggregate behavior

In economics, Aggregate behavior refers to economy-wide sums of individual behavior. It involves relationships between economic aggregates such as national income, government expenditure and aggregate demand. For example, the consumption function is a relationship between aggregate demand for consumption and aggregate disposable income.

Models of aggregate behavior may be derived from direct observation of the economy, or from models of individual behavior. Theories of aggregate behavior are central to macroeconomics.

Aggregate behavior is the study of interactions of factors which affect individual households or firms which in turn affect their economic behavior, subsequently resulting in the alterations of the economy. As aggregate behavior is defined differently according to different schools of economical theories, households and firms react differently to fluctuations in the economy. The interactions between factors macroeconomics and microeconomics will result various changes, be it positive or negative.

The key factors of macroeconomics are gross domestic product, interest rates, employment indicators, fiscal policy and monetary policy.

The key factors of microeconomics are supply and demand in individual markets, individual's choices, market externalities, and the labor market.

The interaction between these key microeconomic and macroeconomic factors will determine how each individual reacts to the market. For example, if an individual runs a shop in his local community whilst the economy of his country is in recession, that individual may not deem his market as being affected by the weak economy and may in fact view his business as booming and thus spend more in expanding his business.

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