What Are the Basics of Macroeconomics
Macroeconomics englobes the study of the economy on a large scale. The study of the economy not only helps small businesses deliver a service or good to a customer base; but it makes sure that on a global basis scarce resources are put onto good use to meet overall demand. Some of the common areas of study in macroeconomics include policy making, interest rates and exchange rates, which are included to help regulate unemployment, inflation and economic growth.
In this OneHowTo article we discuss what are the basisc of macroeconomics.
Microeconomics vs Macroeconomics
To be able to understand this economic field you must first know the difference between microeconomics and macroeconomics. Decisions gathered to help a retail company increase profits or the strategies proposed to help meet an increase in demand for certain goods, are examples that belong to microeconomics. On the other hand, the study of price fluctuations or unemployment levels across the whole retail industry would be explored at a macroeconomic level.
The focus of macroeconomics is not on a single or individual marker; but looks at the bigger picture and what elements are moving the economy as a whole.
Gross Domestic Product (GDP)
A main focus of macroeconomics is measuring economic growth and performance. On a simple basis, if a person buys an item, this generates an increase in income for the company. On a large scale, gross domestic product (GDP) is used to measure the worth of all goods and services in the economy. By studying a country’s GDP per capita, economists are able to measure the standard of living of people living in the country.
Along national income, economists monitor total economic output. This refers to the amounts of goods and services produced and the effect it has on total unemployment levels. The more goods and services that a country is producing the lower the unemployment level should be. Unemployment is a major area of study in macroeconomics as it provides a clear picture of the expenditure power of the population; as well as, seeing a reflection on total GDP levels.
Inflation concerns have spread in the news at many points in time. This indicator measures how the prices of goods and services increase over time, everything else remaining stable. While some form of inflation is expected, sudden changes in prices can pull out businesses from long-term investments and consumers may prefer to save rather than spend due to an increase in uncertainty.
As a result of placing the focus on larger markets, macroeconomics also contemplates the trade of goods and services between different markets and countries. Many industries purchase or produce their raw materials abroad due to lower relative prices, which can help them gain a comparative advantage. Within this area, economists monitor exchange rate fluctuations, tax rates and quota limits.
To be able to regulate the economy, governments employ the use of macroeconomic policies. In times of high unemployment or high economic instability the government tends to use either monetary policies to impact the level of aggregate demand and/or fiscal policies to influence the level of aggregate supply. For instance, measures may include interest rate changes or alterations in government spending.
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