When the price of a product you want to buy goes up, it aඣffects you. But why does the price go up🧔? Is demand greater than supply? Does the cost go up because of the raw materials needed to make it? Or, is it a war in an unknown country that affects the price?

To answe🔥r these questions, we need to turn to macroeconomics. Macroeconomic analysis provides a way to understand the world through ꧒studying the economy.

What Is Macroeconomics? 

Macroeconomics is the study of the behavior of the economy as a whole. This is different from microeconomics, which concentrates more on individuals and how they make economic decisions. While microeconomics looks at single factors that affect individual decisions, 澳洲幸运5官方开奖结果体彩网:macroeconomics studies general economic factors.

Macroeconomics is very complicated, with many factors that influence it. The😼se factors are analyzed with various economic indicators that tell us about the overall health of the economy.

Macroeconomists try to forecast economic conditions 𓆉to help consumers, firms, and governments make better decisions:

• Consumers want to know how easy it will be to find work, how much it will cost to buy goods and services in the market, or how much it may cost to borrow money.
• Businesses use macroeconomic analysis to determine whether expanding production will be welcomed by the market. Will consumers have enough money to buy the products, or will the products sit on shelves and collect dust?
• Governments turn to macroeconomics when budgeting spending, creating taxes, deciding on interest rates, and making policy decisions.

Macroeconomic analysis broadly focuses on three things—national output (measured by g𓂃ross domestic product), unemployment, and inflation.

Gross Domestic Product (GDP)

Output, the most important concept of macroeconomics, refers to the total amount of goods and services a country produces, commonly known as the gross domestic product (GDP). This&n▨bsp;figure is like a snapshot of the economy at a certain point in time.

When referring to GDP, macroeconomists tend to use real GDP, which takes inflation into account, as opposed to 澳洲幸运5官方开奖结果体彩网:nominal GDP, which reflꦯects only changes in price. The nominal GDP figure is higher if inflation goes up from year to year, so it is not necessarily indicative of higher output levels, only of higher prices.

GDP is nonetheless a stepping stone into macroeconomic analysis. Once a series of figures is collected over a period of time, they can be compared, and economists and investors can begin to decipher business cycles, which are made up of the periods alternating between economic recessions (slumps) and 澳洲幸运5官方开奖结果体彩网:expansions (booms) that occur over time.

From there we can begin to look at the reasons why the cycles took place, which could be government policy, consumer behavior, or international phe༺nomena, among other things. Of course, these figures can be compared across economies as well. Hence, we can determine which foreign countries are economically strong or weak.

Based on what they learn from the past, analysts can then begin to forecast the f🥃uture state of the economy. It is important to remember that what determines human behavior, and ultimately the economy, can never be forecasted completely.

The Unemployment Rate

The 澳洲幸运5官方开奖结果体彩网:unemployment rate tells ma🍌croeconomists how many people from the available pool of labor (the labor force) are unable to find work.

Macroeconomists agree when the economy witnesses growth from period to period, which is indicated in the GDP growth rate, 澳洲幸运5官方开奖结果体彩网:unemployment levels tend to be low. This is because𒀰, with rising (real) GDP levels, we know the output is higher and, hence, more laborers are needed to keep up with the greate🍸r levels of production.

Inflation

The third main factor macroeconomists look at is the 澳洲幸运5官方开奖结果体彩网:inflation rate, or the rate at which prices rise. Inflation is primarily measured in two ways: the 澳洲幸运5官方开奖结果体彩网:Consumer Price Index (CPI) and the GDP deflator. The CPI gives the current price of a selected basket of goods and services that is updated periodically. The 澳洲幸运5官方开奖结果体彩网:GDP deflator is the ratio of nominal GDP to real GDP.

If nominal GDP is higher than real GDP, we can assume the prices of goods and services have been rising. Both the CPI and GDP deflator tend to move in the same direction and differ by less than 1%.

Demand and Disposable Income

What ultimately determines output is demand. Demand comes from consumers, from the gov♔ernm൩ent, and from imports and exports.

Demand alone, however, will not determine how much is produced. What consumers demand is not necessarily what they can afford to buy, so to determine demand, a consumer's 澳洲幸运5官方开奖结果体彩网:disposable income mu𝔉st also be meas🍨ured. This is the amount of money left for spending and/or investment after taxes.

To calculate disposable income, a worker's wages must be quantified as well. Salary is a function of two main components: the minimum salary for which employees will work and the amount employers are willing to pay to keep the employee. Given that demand and supply go hand in hand, salary levels will suffer in times of high unemployment, and prosper when unemployment levels are low.

Demand inherently will determine supply (production levels) and an equilibrium will be reached. But in order to feed demand and supply, money is needed. A country's central bank (the Federal Reserve in the U.S.) typically puts money in circulation in the economy. The sum of all individual demand determines how much money is needed in the economy. To determine this, economists look at the nominal GDP, which measures the aggregate level of transactions, to determine a suitable level of the money supply.

What the Government Can Do

There are two ways the government implements macroeconomic policy. Both monetary and fiscal policy are tools the government uses to help stabilize a nation's economy. Below, we take a look at how each works.

Monetary Policy

A simple example of 澳洲幸运5官方开奖结果体彩网:monetary policy is the central bank's 澳洲幸运5官方开奖结果体彩网:open market operations. When there is a need to increase cash in the economy, the central bank will buy government bonds (monetary expansion). These securities allow the central bank to inject the economy with an immediate supply of cash. In turn, interest rates—the cost to borrow money—are reduced because the demand for the bonds will increase their price and push the interest rate down. In theory, more people and businesses will then buy and invest. Demand for goods and services will rise and, as a result, the output will increase. To cope with increased levels of production, unemployment levels should fall and wa꧑ges should rise.

On the other hand, when the central bank needs to absorb extra money in the economy and push inflation levels down, it will sell its 澳洲幸运5官方开奖结果体彩网:Treasury bills, or T-bills. This will result in higher interest rates, which will cause less borrowing, less spending, and less investment. It will also decrease demand, which will ultimately push down the 澳洲幸运5官方开奖结果体彩网:price level (inflation) and result in less real output.

Fiscal Policy

The government can also increase taxes or lower government spending in order to conduct a fiscal澳洲幸运5官方开奖结果体彩网: contraction. This lowers real output because less government spending means less disposable income for consumers. And, when more of a consumer's wag🐽es go to taxes, demand will also decrease.

A fiscal expansion by the government would mean taxes are decreased or government spending is increased. Either way, the result will be growth in real output because the governmen🌠t will stir demand with increased spending. In the meantime, a consumer with more disposable income will be𝐆 willing to buy more.

A government will tend to use a combination of both mon𝕴etary and fiscal options when setting policies that deal with the economy.

The Bottom Line

The performance of the economy is important to all of us. We analyze the economy by primarily looking at the national ou𝓡tput, unemployment, and inflation. Although it is consumers who ultimately determine the direction of the economy, governments also influence it through fiscal and monetary policy.