| Macroeconomics is a branch of economics that | | | | hyperinflation is extreme inflation and stagflation is |
| looks at aggregate or total economic variables to | | | | when inflation gets combined with economic |
| study the behavior of a national economy as a | | | | stagnation. |
| whole. | | | | Macro-economists measure the cost of living by |
| This is in contrast to Microeconomics which looks | | | | the consumer price index, or CPI. The CPI has |
| at production and prices within specific markets. | | | | been used since 1917 and is published monthly. It |
| When Macro-economists study an economy, they | | | | gives the cost in dollars of a specific list of goods |
| look at 3 major variables. These are output, the | | | | and services over time. |
| unemployment rate, and the inflation rate. | | | | U.S. Bureau of Labor Statistics employees actually |
| 1. Output is the level of production in an economy | | | | visit over 22,000 locations in 85 cities to see |
| as a whole. The measure of aggregate output in | | | | what's happening to the prices of products on the |
| the U.S. is known as the Gross Domestic Product, | | | | CPI list such as cars, gas, clothing, food, etc. |
| or GDP. It can be thought of from 2 different | | | | As an index, the CPI is set equal to 1 in the base |
| perspectives, production and income. | | | | period chosen. This is so its level has no particular |
| From the production side: GDP is the value of the | | | | significance. The current base period are the |
| final goods and services produced in an economy | | | | years 1982 to 1984, thus the average for the |
| during a given period. GDP is also the | | | | period 1982 to 1984 is equal to one. |
| "value-added" that all the businesses added to the | | | | In the year 2000, for example, the U.S. CPI was |
| economy during a given period. | | | | 1.71. This means that when comparing prices for |
| From the income side: GDP is the sum of incomes | | | | similar products, they were 71% higher in 2000 |
| in the economy during a given period. This is the | | | | than they were in the time period 1982-1984. |
| income or revenue that a business (a) is left with | | | | When demand rises, this is called a Boom and it |
| as profit, (b) pays to the government as taxes, | | | | leads to inflation. Follow this: |
| and (c) pays to employees as wages. | | | | When consumer demand increases, the goal of |
| 2. The unemployment rate is the proportion of | | | | production is, of course, to keep up with that |
| workers in an economy who are not employed | | | | consumer demand. This entails paying workers |
| but are seeking work. The total labor force is a | | | | overtime or hiring additional workers to beef up |
| combination of people who are working plus those | | | | output. All this extra work means that labor costs |
| who are not working but want to work. | | | | rise because more people are being paid to do the |
| In the U.S., the Bureau of Labor Statistics | | | | work. These increased labor costs are passed on |
| conducts the Current Population Survey or CPS. It | | | | to the consumer in the form of higher prices. And |
| interviews about 50,000 households each month | | | | higher prices, as we've said, are the definition of |
| to determine if the adults are employed. | | | | inflation. |
| The survey classifies an individual as employed if | | | | When demand falls, this is called a Recession and |
| they have a job at the time of the interview and | | | | it leads to deflation. Follow this: |
| as unemployed if they don't have a job but have | | | | When consumer demand falls, workers get laid |
| been actively seeking a job within the prior 4 | | | | off or have their working hours cut back. If |
| weeks. | | | | production needs decrease, fewer workers are |
| If someone isn't working and doesn't want to | | | | obviously needed to fill the decreases in demand. |
| work, they are not counted as part of the labor | | | | The decreased labor costs are passed on to the |
| force. | | | | consumer in the form of lower prices. Companies |
| So the unemployment rate is the number of | | | | must reduce their prices to stay competitive in a |
| unemployed people seeking work divided by the | | | | shrinking marketplace. And lower prices are the |
| total labor force. The lower the unemployment | | | | definition of deflation. |
| rate, the more people are working, and this | | | | Recession is a period of negative GDP growth. |
| results in higher economic output. | | | | The time frame for a recession is debated. Many |
| 3. Inflation is a sustained rise in the general level | | | | macro-economists insist that negative growth |
| of prices. The inflation rate is the rate at which | | | | must last for at least 2 consecutive quarters. |
| the average price of goods in an economy | | | | Others define recession more loosely, as a |
| increases over time. | | | | significant decline in growth that lasts more than a |
| And deflation is the rare opposite, a sustained | | | | few months. A sustained recession is called an |
| decline in price levels. Deflation is also called | | | | economic depression. |
| negative inflation. | | | | "A creative economy is the fuel of magnificence. |
| Here are some more economic scenarios: | | | | |