Simple Ways to Understand the Economy

in Invest by Lacey Langford, AFC®

You hear about it all the time—the economy. It’s in the headlines, in political debates, and in your social media feed. But let’s be honest, most of the time, when people talk about the economy, it sounds like they’re speaking a different language.

For those of us in the military community, life is already full of acronyms, paperwork, and constant change. Add in economic terms like “GDP,” “monetary policy,” or “inflation expectations,” and it can start to feel like a college textbook you never asked for.

I get it. I struggled in my college economics classes. I’m a hands-on learner, and all the theory was overwhelming. When I asked for help, my professor didn’t guide me, he told me maybe finance wasn’t for me. (Spoiler: He was wrong.)

That experience 100% stuck with me. And it’s part of the reason I’m writing this. To help you understand the basics of economics without needing a PhD or a Wall Street job. The economy isn’t just something that affects Wall Street. It affects your wallet, your grocery bill, your job prospects, and your future.

What Is the Economy and How Does It Work?

At its core, the economy is just the big system that describes how money and resources move through our world. It’s people like you and me earning money, spending it, saving it, and investing it. Businesses paying employees, selling products or services, and trying to grow. It’s the government collecting taxes and choosing how to spend them.

All of that activity —what we buy, what we save, how we work, and what we invest in —is the economy.
If you’ve ever gotten a paycheck, paid rent, bought groceries, or planned for a PCS move, you’ve participated in the economy.

What Makes an Economy Strong or Weak?

A strong economy usually means:

A weak economy might look like:

These signals help economists and policymakers decide what actions to take, like changing interest rates or passing new laws.

What Is Economics and How Is It Different From the Economy?

Economics is just the study of how people, businesses, and governments make choices about money and resources. It looks at how we respond to changes, like what happens when gas prices go up or when interest rates rise.

But here’s the good news: you don’t need to understand every theory or formula to “get” economics. If you’ve ever budgeted for a PCS move, decided between Tricare options, or debated whether to rent or buy a home, you’ve already practiced economics.

This article isn’t about turning you into an economist. It’s about giving you just enough to have a smart, confident conversation and make better money decisions for your family.

Before we move on, it helps to know that economics is usually divided into two main areas: macroeconomics and microeconomics.

Understanding Macroeconomics vs. Microeconomics in Everyday Life

Macroeconomics and microeconomics are two sides of the same coin. They both help us understand how money and resources move, but they zoom in at different levels.

Macroeconomics looks at the big picture: things like the overall economy, national unemployment, inflation, interest rates, and government policies. If you’re watching the news and hear that the U.S. is in a recession or that the Federal Reserve raised interest rates, you’re hearing about macroeconomics.

Microeconomics, on the other hand, looks at individual choices: how people, families, and businesses decide what to buy, sell, or save. For example, if your family decides to buy used instead of new to stay within budget, or a local coffee shop raises prices because their supplier costs went up—that’s microeconomics.

In short, macro is the economy as a whole, and micro is the economy at your kitchen table or local business. Both help us understand how money choices affect our lives, from national headlines to everyday decisions.

Why Military Families Benefit From Understanding the Economy

Understanding the economy isn’t about memorizing terms or reading daily economic news. It’s about knowing how money moves so that you can make smart decisions, especially in military life, where change is constant.

Here’s why it matters:

Graphic with a dotted blue background featuring the quote: "You don’t need a degree to understand the economy—just the desire to take control of your money." The MILMO logo appears in the top right corner.

How the Economy Affects Your Everyday Life

You don’t need a finance degree to see how the economy affects your daily routine—it’s already in your budget, your inbox, and your conversations.

Here are a few real-life examples of how the economy works:

The economy isn’t some abstract thing happening in a New York boardroom. It’s happening in your day-to-day life.

Related content: What is the Thrift Savings Plan (TSP)?

Common Economic Terms Explained Simply

Here are a few common terms you might hear in economic news, in plain language.

GDP (Gross Domestic Product)

The total value of everything a country produces. It’s one way to measure how “healthy” the economy is.

Example: When GDP is growing, it usually means businesses are making more stuff and hiring more people. That’s a sign the economy is doing well.

Inflation

When prices go up over time.
Example: If milk used to cost $3 and now it’s $4, that’s inflation. It means your dollar doesn’t stretch as far as it used to.

Recession

When the economy slows down for several months in a row.
Example: During a recession, companies may stop hiring, people may spend less, and job loss becomes more common.

Unemployment Rate

The percentage of people who want a job but can’t find one.
Example: A rising unemployment rate can mean fewer jobs are available, which could affect your transition out of the military.

Interest Rates

The cost of borrowing money. Set by the Federal Reserve, these rates impact everything from home loans to credit cards.
Example: If interest rates go up, your VA loan may have a higher monthly payment than it would’ve last year.

Opportunity Cost

The value of what you give up when you make a choice.
Example: If you spend money on a new car, the opportunity cost might be not having that money for travel or savings.

Supply and Demand

The basic idea that prices go up when something is in high demand but short supply, and go down when there’s too much of something and not enough people want it.
Example: If there’s a shortage of housing near base, rent prices might go up.

Cost of Living

How much it costs to pay for basic expenses like housing, food, and transportation in a specific area.
Example: Some duty stations have a higher cost of living, which is why you might get COLA (Cost of Living Allowance).

Deficit vs. Debt

Deficit: When the government spends more than it earns in a year.
Debt: The total amount the government owes from borrowing over time.
Example: Think of a deficit as adding to a credit card each month, and debt as the total balance you owe.

Scarcity

When there aren’t enough resources to meet everyone’s wants or needs.

Example: If there aren’t enough housing units on base, families may have to wait longer or pay more to live off-base. That’s scarcity in action.

Infographic titled “Common Economic Terms Explained Simply,” featuring definitions and real-life examples for key terms including GDP, deficit vs. debt, recession, unemployment rate, opportunity cost, interest rates, scarcity, inflation, supply and demand, and cost of living. Each term is color-coded in its own box with icons and plain-language explanations designed to help readers understand basic economic concepts. MILMO logo appears in the bottom right corner.

How Understanding the Economy Helps You Make Smarter Decisions

Once you understand the basics, you’ll feel more confident making decisions like:

When you know how the economy works, you’re less likely to be caught off guard and more likely to spot opportunities.

Where to Start Learning More About the Economy

Want to learn more about economics? Here are a few places to keep learning (for free), at your own pace:

Learning a little at a time adds up, especially when it’s explained in a way that makes sense for your life.
You don’t have to dive into everything at once. Pick one topic or resource that interests you and go from there. Just staying curious puts you ahead of the game.

Wrapping Up: The Economy For Everyone

The economy isn’t just for investors or politicians. It’s for service members, military spouses, veterans, and everyday people who want to make smart choices with their money and understand how the U.S. economy works.

You don’t need to read every financial article or follow the stock market daily. But having a basic understanding of how the economy works? That’s powerful.

It means you can filter the noise, stay calm when the headlines get loud, and plan your financial future with more confidence.

This isn’t about being perfect or impressing anyone. It’s about taking care of your own and being financially ready for whatever comes next. You’ve got this.

Want more practical money tips for military life?
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Featured 📸 by Sgt. Anthony Herrera

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