Learn something new every day More Info... by email
Macroeconomics is a study of the aggregate in an economy in a specific nation. Economists use information gleaned from the aggregate level in order to determine the strength of an economy and the current stage of the business cycle. A few different macroeconomic indicators include gross domestic product, inflation, unemployment, and a variety of others. Economists track and report these macroeconomic indicators on a quarterly and annual basis for many stakeholders. Trends and other movements — such as short-term spikes — help a nation diagnose economic issues and make corrections if necessary.
Gross domestic product is often among the most commonly reported macroeconomic indicators. Its purpose is to determine the market value of all goods produced by a nation in a given time period. Growth occurs when the resulting figures are positive, such as 2.1 or 4.3 percent for a given quarter. Higher figures indicate higher growth, naturally. Negative gross domestic product figures are also possible, which indicate negative growth and a potential for a business cycle contraction.
Inflation is also a very important indicator; it determines the purchasing power of currency for a given period. While natural economic growth can result in inflation, the most common occurrence of inflation comes from government intervention in mixed economies. Lowering interest rates or increasing money supply can trigger inflation, traditionally defined as too many dollars chasing too few goods. Macroeconomic indicators tracking inflation may be a monthly computation rather than quarterly. This allows a nation to assess this important figure on a more frequent basis and make changes as necessary to ward off the negative affects of this economic problem.
Unemployment is also an important indicator in macroeconomic terms. Here, nations desire information on the investments made by private-sector businesses. When unemployment decreases, more individuals are working and making money, which eventually finds its way back into the economy. Rising unemployment can signal businesses that are unsure of the moves in the aggregate economy and are attempting to downsize in order to remain profitable. With rising unemployment, a nation’s gross domestic product will fall, and the economy may enter a contraction period, with the length potentially unknown.
The macroeconomic indicators above are all lagging indicators, meaning they report on activities in the past. Significant downsides to lagging indicators are primarily from the fact that the economy may already have changed since computing the above indicators. This means the economy may actually be doing better or worse than the numbers indicate. Therefore, it can be difficult to actually determine the strength of an economy based on these indicators alone.