Economics is often split into two main branches. One branch, microeconomics, puts individual trees under a microscope. It looks at the decisions of single households, individual companies, or specific markets. How does a family decide to spend its money? Why does a coffee shop charge $3 for a latte?

Macroeconomics is the other branch. It zooms out to look at the entire forest. It studies the economy as a whole, focusing on the big-picture issues that affect everyone. Macroeconomics tackles questions like: Why does the cost of living go up? What causes economic booms and busts? How can a country create more jobs?

Instead of focusing on a single consumer, macroeconomics looks at total consumer spending. Instead of one company's output, it measures the output of the entire nation. It’s the study of broad trends and the forces that shape national and global economies.

Thinking about the economy on these two different scales—the individual and the collective—can be tricky at first. Here’s a quick comparison to make the distinction clear.

While they look at different scales, the two fields are deeply connected. The decisions of millions of individuals (micro) add up to create the national trends (macro) that economists study.

Just as a doctor checks a patient's vital signs, economists use key indicators to measure the health and performance of an economy. These numbers help policymakers, businesses, and the public understand where the economy is, where it's been, and where it might be going. The three most important vital signs are Gross Domestic Product (GDP), inflation, and unemployment.

GDP is the broadest measure of a nation's economic activity. Think of it as the country's total annual income. It adds up the value of everything produced, from cars and computers to haircuts and financial advice. When GDP goes up, the economy is generally growing. When it goes down, the economy is shrinking.

A key word here is "final." If a company makes steel that is then used to build a car, only the final value of the car is counted in GDP. This avoids double-counting the value of the steel. Similarly, the sale of a used car doesn't count towards GDP, because its value was already counted when it was first produced and sold as a new car.

Next, let's look at the cost of living.

Inflation means your money doesn't stretch as far as it used to. If the inflation rate is 3%, a basket of groceries that cost $100 last year will cost you $103 this year. While some inflation is a normal feature of a growing economy, high or unpredictable inflation can create uncertainty and hurt people on fixed incomes.

The unemployment rate is the percentage of the labor force that is out of work but actively looking for a job. This is an important distinction. A full-time student, a retiree, or someone not looking for work is not counted in this figure. A high unemployment rate signals that the economy isn't creating enough jobs for the people who want to work, which can lead to widespread hardship.

These three indicators—GDP, inflation, and unemployment—provide a snapshot of an economy's performance. Now, let's review these core concepts.

Understanding these big ideas is the first step in making sense of the economic news you hear every day.