What is Macroeconomics?
The study of economics involving phenomena that affects the entire economy, including inflation,economic decline, unemployment, economic growth, price levels, and the relationships between all of these. Where macroeconomics looks it how household and businesses make decisions and behave in the marketplace and macroeconomics looks in a big picture. It analyses the entire economy. We live in a complex and inter-connected world. The economy is affecting to all. Most of us depend on the economy to provide job or business opportunities so we can make money to buy the goods and services we need to survive in function modern society.
The study of macroeconomics allows us to better understand what makes our economy growth and what makes it contract. A growing economy provides opportunities for a better life while a contracting economy disasters for most everyone. Macroeconomics provides the analysis for proper policy making so we can develop the nature best economy possible. Macroeconomics focuses on three broad areas and the relationship between them. These three concepts affect all participants in economy including consumers workers producers and government.
Macroeconomics studies the national output or income of a country. The National economic output is the total value of all good and services produced in an economy during a specific time period. Economists measure national output by calculating the gross domestic product (GDP) which is the market value of final goods and services an economy produced during a specific period of time. Economists will use the term real GDP which is GDP valued at a constant price level to compare the current output with past output. This comparison will tell you the economy is growing to stagnate or it’s contracting. The basic model that used in macroeconomics to study economic fluctuations is the model of aggregate demand and aggregate supply. The model involves two variables. The economy output which measures by real GDP and economy overall price level measured by a price index. Usually the GDP deflator or CPI. You can plop the general price level in an economy on the vertical axis of the graph and the quantity of the output on the horizontal axis. The aggregate supply curve is upward sloping and the short run but vertical in a long run. The aggregate demand curve is downward sloping. Economic output in the price level will move towards the point where aggregate supply equal to aggregate demand. Fluctuation in economics output generally called by one of two things.
01. Fluctuation can occur when the aggregate demands shifts.
If the aggregate demand curve shifts to the left output and prices will decline. IF the curve shifts to the right output and prices will rise.
02. Economic fluctuations may be caused by a shift in aggregate supply.
A right shift in the aggregate supply curve means that the quantity of goods and services supply will increase at a particular price level. If a short-term aggregate supply shifts to the left output will fall and prices will rise. This is called stagflation.
Macroeconomic study employment and what leads to unemployment which is the percentage of people who are not working but want to work. Unemployment doesn’t economic reality. There is a natural rate of unemployment that in an economy normally experiences even one in an economy is stable. Cyclical unemployment is a deviation from the natural unemployment rate that is usually caused by fluctuations in the business cycle. People transitioning between jobs cause frictional unemployment and structural unemployment which unemployment that occurs when there are jobs available. but unemployed workers don’t have the skills to qualify for them. Economists measure unemployment through calculating the unemployment rate and the labor participation rate. The unemployment rate measures the percentage of people in the labor force that are unemployed. Labor participation rate measures the percentage of people that are eligible to work but are not working.
Inflation and Deflation
Inflation is a rise in the general price level of an economy and Deflation is a decline in the general price level of an economy
Money supply is correlated to Inflation and Deflation. According to the quantity theory of money, the quantity of money available in an economy will determine the general price level and the growth rate in the quantity of money will determine the rate of inflation. As the money supply increases, inflation will increase.
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