Understanding the importance of macroeconomic variables

Consequently, government intervention is sometimes sought in order to correct for economic instability.

microeconomic variables

GDP stands for the Gross Domestic Product, a measurement of the annual productivity of the property and labor of all citizens and foreign residents within the geographic borders of a country including its foreign territories such as embassies and purchased military bases abroad.

A low unemployment rate is an indication of good economic performance.

Macroeconomics variables slideshare

Different sections of society are affected differently as a result of changes in the value of money. Second, controversy aside, government involvement in microeconomics is relatively small, and relegated to public goods, regulation, and welfare. Presumably, countries at early stages of development have relatively equal distributions of income because levels of per capita income and capital are low. The essays in our library are intended to serve as content examples to inspire you as you write your own essay. London: Routledge. Inflation also redistributes wealth among the population in a way that has nothing to do with merit. It is, therefore, no surprise that economic policy is always a primary issue of debate for candidates during campaigns. Simon Kuznets — argued that levels of economic inequality can change as countries develop and, hence, accumulate more capital. That is powerful insurance. As for the controversy on whether monetary policy should be made by rule rather than by discretion, advocates assert that discretionary monetary policy does not limit incompetence and abuse of power. In other words, macro-economists investigate why the economies of many developing countries in Asia , Africa, Latin America , and eastern Europe tend to grow at a slower rate than those of developed countries, and how the rate of economic growth for a certain country can be improved over time.

Its main presumption is that the economy works better when government intervention is kept at a minimum because the behavior of different economic agents tends to achieve self-interests that are consistent with the overall well-being of the economy. The aim of the study is to understand the reason for the fluctuations and to ensure the maximum level of employment and income in a country.

Thus, keeping workers employed is always a chief concern of economic policymakers.

Importance of macroeconomics

The Logic of Banking The Role of Consumers: The banking system is a system built on the trust and confidence of the public that its hard earned money when deposited with banks will retain their value over time as well as earn some interest; thus the decision to consume now or consume in the future will not be a false empty choice. Therefore, policymakers should refrain from intervening in order to avoid doing any harm to the economy. What causes recessions and how can economic policy be used to reduce their incidence and scale? Slowdowns in economic growth are called recessions. Take a look at figure on page of your book. Four: per-capita-GDP does not reflect in-state distribution of income. When the inflation rate is high, the real value of money erodes. For the purpose of such an assessment, three macroeconomic variables are particularly important: gross domestic product GDP , the unemployment rate, and the inflation rate. Why is macroeconomics said to be a typical public good? Forecasting is made a little easier by the recurrent nature of the business cycle, enabling macro-economists to establish statistical regularities as formula for predicting the economy. When citing an essay from our library, you can use "Kibin" as the author.

Why do some countries have high rates of inflation while others maintain stable prices? It considers households both as suppliers of factors of production labor, land, capital, entrepreneurship and as ultimate consumers of final goods and services.

Any disequilibrium in a single market would eventually result in an automatic correction via the interaction between the two sides of the market, supply and demandwith the help of price flexibility.

Macroeconomics variables ppt

Measuring Economic Output Economic output or income is measured in terms of the gross domestic product GDP , which is basically the combined earnings from a year's worth of goods and services produced by a country. Therefore, policymakers should refrain from intervening in order to avoid doing any harm to the economy. The aim of the study is to understand the reason for the fluctuations and to ensure the maximum level of employment and income in a country. A higher rate tends to indicate a more economically solvent nation. Different sections of society are affected differently as a result of changes in the value of money. Classical economists believed that the market itself would correct for any economic imbalance or turbulence without the need for government intervention. The 12 Presidents of the Federal Reserve District Banks is collectively responsible for establishing and recommending to the Fed the discount rate. A protracted and severe recession is a depression. Expectation inflation is caused by an inflationary psychosis, a crippling fear of inflation that so dominates the public it forces consumers and producers into taking actions that actually trigger inflation as a self-fulfilling prophesy. Since then, the US economy has been pro-growth with five notable recessions, none of which lasted long, suggesting the overall economy remains healthy, reaching its historical high in the current to period. Money or to be more precise, the current volume of money or the liquidity rate has three functions that together control the beat of the economy: money is the medium of all economic transactions or exchange money is the store of value over time, the more reliable the better Money is a commodity that can be traded for its value.

Full-employment inflation is caused when demand continues to be strong when the economy is already at full employment and all available resources, including labor, is already engaged.

The Great Depression forced neoclassical economists to accept for the first time that business cycles and the extent of fluctuations in the economy are both significant. Full employment economy is said to exist whenever the unemployment rate falls below 5.

nine macroeconomic variables
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Understanding the Importance of Macroeconomic Variables