Macroeconomics – The term
macro origins from the Greek word “ makro” meaning "large" and
economics. It is a branch of economics dealing with the performance, structure,
behavior, and decision-making of an economy as a whole, rather than individual
markets. This includes national, regional, and global economies. With
microeconomics; macroeconomics is one of the two most general fields in
economics.
Macroeconomists study
aggregated indicators such as GDP, unemployment rates, and price indices to
understand how the whole economy functions. Macroeconomists develop models that
explain the relationship between such factors as national income, output,
consumption, unemployment, inflation, savings, investment, international trade
and international finance.
Macroeconomic models and
their forecasts are used by both governments and large corporations to assist
in the development and evaluation of economic policy and business strategy.
Macroeconomics encompasses
a variety of concepts and variables, but there are three central topics for
macroeconomic research. Macroeconomic theories usually relate the phenomena of
output, unemployment, and inflation. Outside of macroeconomic theory, these
topics are also extremely important to all economic agents including workers,
consumers, and producers.
Output and income
National output is the
total value of everything a country produces in a given time period. Everything
that is produced and sold generates income. Therefore, output and income are
usually considered equivalent and the two terms are often used interchangeably.
Output can be measured as total income, or, it can be viewed from the
production side and measured as the total value of final goods and services or
the sum of all value added in the economy. Macroeconomic output is usually measured
by Gross Domestic Product (GDP) or one of the other national accounts.
Inflation and deflation
A general price increase across the entire
economy is called inflation. When prices decrease, there is deflation.
Economists measure these changes in prices with price indexes.
Inflation can occur
when an economy becomes overheated and grows too quickly. Similarly, a
declining economy can lead to deflation. Central bankers, who control a
country's money supply, try to avoid changes in price level by using monetary
policy. Raising interest rates or reducing the supply of money in an economy
will reduce inflation. Inflation can lead to increased uncertainty and other
negative consequences.
Deflation can lower
economic output. Central bankers try to stabilize prices to protect economies
from the negative consequences of price changes.
Unemployment
The amount of unemployment
in an economy is measured by the unemployment rate, the percentage of workers
without jobs in the labor force. The labor force only includes workers actively
looking for jobs. People who are retired, pursuing education, or discouraged
from seeking work by a lack of job prospects are excluded from the labor force.
The relationship demonstrates cyclical unemployment. Economic growth leads to a
lower unemployment rate. Unemployment can be generally broken down into several
types that are related to different causes.
· Classical unemployment occurs when wages are too
high for employers to be willing to hire more workers. Wages may be too high
because of minimum wage laws or union activity.
· Structural unemployment covers a variety of
possible causes of unemployment including a mismatch between workers' skills
and the skills required for open jobs.
· Structural unemployment is similar to frictional
unemployment since both reflect the problem of matching workers with
job vacancies, but structural unemployment covers the time needed to acquire
new skills not just the short term search process.
While some types of
unemployment may occur regardless of the condition of the economy, cyclical
unemployment occurs when growth stagnates.
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