Uploaded August 2026 | Updated September 2026, 3 weeks ago

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What is macroeconomics, and what does it tell us about how an economy really works?

In this episode of Understanding Economics, I explain why macroeconomics is about much more than GDP, economic growth, inflation and unemployment. It is about understanding the economy as a whole system in which households, businesses, banks and government are interconnected.

Conventional macroeconomics often starts from the assumption that markets tend towards balance, people behave rationally, and government plays a secondary role. But real economies do not work like that. They are constantly changing, markets do not always self-correct, and rising GDP does not necessarily mean that everyone is becoming better off.

I explain why money and government are central to understanding a modern economy, why government finances are fundamentally different from household finances, and why one person’s spending is another person’s income.

Most importantly, I argue that macroeconomics should begin with people. The real questions are whether an economy can provide useful work, stable prices and rising well-being, while using the resources available to us within the limits of the planet.

Understanding macroeconomics means understanding how all these things connect, and how government policy can change the outcome.

This is part of my Understanding Economics series.

You can watch the rest of this series here: youtube.com/playlist?list=PLaSguNBvHIto

Take a look at today's poll: youtube.com/post/Ugkx6oR2gzEuSaLqKWayMW4ecfk_bh-lYqLe

00:00 What Is Macroeconomics?
00:42 The Questions Macroeconomics Tries to Answer
01:32 Why Conventional Macroeconomics Falls Short
02:25 A Better Way to Understand the Economy
03:15 Why the Economy Is One Connected System
04:08 Why Government Is Not Like a Household
05:04 What Macroeconomics Should Explain
05:56 Building an Economy That Works for Everyone

TRANSCRIPT
A transcript for this video is available at: taxresearch.org.uk

IF YOU WANT TO WRITE TO YOUR MP ABOUT ISSUES IN THIS VIDEO
If you want to write a letter to your MP on the issues raised in this blog post, there is a ChatGPT prompt to assist you in doing so, with full instructions, here. taxresearch.org.uk/Blog/2025/06/20/chatgpt-prompt-for-a-letter-to-your-mp

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ABOUT RICHARD MURPHY
Richard Murphy is Emeritus Professor of Accounting Practice at Sheffield University Management School. He is director of Tax Research LLP and the author of the Funding the Future blog. His best-known book is ‘The Joy of Tax’.

This video was edited by Thomas Murphy.

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