As the term implies, macroeconomics looks at the overall, big picture scenario of the economy. Put simply, it focuses on the way the economy performs as a whole. This includes looking at variables like unemployment, GDP and inflation.
Outside of macroeconomic theory, these topics are also important Macro economy all economic agents including workers, consumers, and producers. Output and income[ edit ] National Macro economy is the total amount of everything a country produces in a given period of time.
Everything that is produced and sold generates an equal amount of income. The total output of the economy is measured GDP per person. Output can be measured 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.
Economists interested in long-run increases in output study economic growth. Advances in technology, accumulation of machinery and other capitaland better education and human capital are all factors that lead to increased economic output over time.
However, output does not always increase consistently over time. Business cycles can cause short-term drops in output called recessions. Economists look for macroeconomic policies that prevent economies from slipping into recessions and that lead to faster long-term growth. The relationship demonstrates cyclical unemployment.
Economic growth leads to a lower unemployment rate. The amount of unemployment in an economy is measured by the unemployment rate, i. The unemployment rate in 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. Unemployment can be generally broken down into several types that are related to different causes. Classical unemployment theory suggests that unemployment occurs when wages are too high for employers to be willing to hire more workers.
According to these more recent theories, unemployment results from reduced demand for the goods and services produced through labor and suggest that only in markets where profit margins are very low, and in which the market will not bear a price increase of product or service, will higher wages result in unemployment.
Consistent with classical unemployment theory, frictional unemployment occurs when appropriate job vacancies exist for a worker, but the length of time needed to search for and find the job leads to a period of unemployment. Structural unemployment is similar to frictional unemployment as both reflect the problem of matching workers with job vacancies, but structural unemployment also covers the time needed to acquire new skills in addition to the short-term search process.
Over the long run, the two series show a close relationship. 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. 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. Changes in price level may be the result of several factors. The quantity theory of money holds that changes in price level are directly related to changes in the money supply.
Most economists believe that this relationship explains long-run changes in the price level. For example, a decrease in demand due to a recession can lead to lower price levels and deflation. A negative supply shock, such as an oil crisis, lowers aggregate supply and can cause inflation.
The AD-AS model has become the standard textbook model for explaining the macroeconomy. The AD—AS diagram can model a variety of macroeconomic phenomena, including inflation. Changes in the non-price level factors or determinants cause changes in aggregate demand and shifts of the entire aggregate demand AD curve.
When demand for goods exceeds supply there is an inflationary gap where demand-pull inflation occurs and the AD curve shifts upward to a higher price level. When the economy faces higher costs, cost-push inflation occurs and the AS curve shifts upward to higher price levels.
The IS—LM model represents all the combinations of interest rates and output that ensure the equilibrium in the goods and money markets. The Solow model assumes that labor and capital are used at constant rates without the fluctuations in unemployment and capital utilization commonly seen in business cycles.Macroeconomics (from the Greek prefix makro-meaning "large" + economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole.
This includes regional, national, and global economies. Macroeconomists study aggregated indicators such as GDP, . Macroeconomics is the study of how the aggregate economy behaves. Macroeconomics, in its most basic sense, is the branch of economics that deals with the structure, performance, behavior and decision-making of the whole, or aggregate, economy, instead of.
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The first quarter growth figures for the UK are terrible, with GDP per head falling slightly, and they are consistent with an underlying economy which is very weak.