What Is Global Macroeconomics?

Esther Ejim

Global macroeconomics is the analysis of macroeconomic factors from a global point of view. Such macroeconomic factors include facets like the Gross Domestic Product (GDP), unemployment rate in different economies, inflation, government interest rates, government monetary policies, currency exchange rates, and various government monetary policies. Global macroeconomics is a complement to basic macroeconomics at the national level. A well-rounded knowledge of the state of the world economy can be used in conjunction with statistics from the national economy to arrive at more accurate conclusions.

Man holding a globe
Man holding a globe

One of the areas of analysis in macroeconomics is the rate of demand and supply in the various global economies. Demand and supply rates matter because they are indicative of the level of consumption of goods and services. When there is a high and sustained level of demand for goods and services, this is reflected in the level of supply to satisfy the demand. An increased level of demand means that the consumption level is also high, leading to an increase in the GDP level of the country.

Another effect of increased consumption in an economy is a correlative increase in the level of employment as a consequence of the higher demand for goods and services. This aspect of global macroeconomics measures the manner in which businesses higher more people to help keep up with the demand for goods and services. When the demand rate falls, the unemployment rate increases as the businesses shed some of their workers for part of their strategic adjustments to lower demand and accompanying lower sales.

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Such factors like unemployment and consumer demand affect the types of monetary policies that various governments impose in response to fluctuations in the GDP caused by macroeconomic factors. This aspect of global macroeconomics is more concerned with the manner in which such monetary policies might affect other economies in terms of trade and exchange rates. For instance, the monetary policy might include a devaluation of the nation’s currency in response to inflationary considerations caused by an overheated market. Such a move will have an impact on importers and exporters in terms of the value of the local currency to various foreign currencies.

Some countries may increase or decrease their interest rates in a bid to control macroeconomic factors like demand or consumption of goods and services. The aim of an increase in interest rates may be to force consumers to decrease their level of demand in order to bring down high GDP levels. The aim of a decrease may be to encourage consumers to spend more and increase GDP levels. When interest rates are low consumers may spend more, and this may lead to an increase in demand for goods from other countries as well as local goods.

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