Discussing the major factors of macroeconomics brings us to defining macroeconomics as a branch of economics which has to do with the performance, structure, behavior, and decision-making of an economy as a whole for example, using interest rates, taxes, and government spending to regulate an economy’s growth and stability. This includes regional, national, and global economies.
Topics such as GDP, unemployment as well as the rates of unemployment, national income, price indices, output, consumption, inflation, saving, investment, energy, international trade, and international finance are the major concerns of macroeconomics.
It is easy to understand how macroeconomics works. One of the ways to do so is by checking out the different theories that explains it. Theoretically, the money velocity (V) and the quantity of goods produced (Q) would be constant, so any increase in money supply (M) would lead to a direct increase in price level (P).
MV=PQ
Macroeconomics takes a big-picture view of the entire economy, including examining the roles of, and relationships between, corporations, governments and households, and the different types of markets, such as the financial market and the labor market. The quantity theory broke down because people and businesses tend to hold on to their cash in tough economic times.
Macroeconomic output is usually measured by gross domestic product or one of the other national accounts. Economists interested in long-run increases in output, study economic growth.
Read Also: 4 Major Objectives of Macroeconomics
Advances in technology, accumulation of machinery and other capital, and better education and human capital, are all factors that lead to increase economic output over time.
It is time to dissect the major factors of macroeconomics that you may consider worthy of the call one after the other. This will at least open up the bright side of macroeconomics to the overall business arrangements that can facilitate business growth:
International Trade
Trading goods and services internationally impacts the economic health of a country by indicating the value of their currency and the demand for it across the world. Economies that export more goods than they import through international trade reach a surplus and raise the value of their currency since their goods are in more demand.
If a country imports more than they export, they spend more of their currency purchasing goods from another nation. This phenomenon is called a trade deficit and causes currency to be of less value than that of an economic trade partner.
Economic Growth Rate
This factor describes the change in the percent of the cost of producing goods or services in a country during a certain period of time in relation to a previous growth period.
Fiscal Policy
Monetary policy is shaped by large financial institutions in both the public and private sectors. Large banks and government agencies make decisions that impact interest rates, inflation and federal budgets. This guides the flow of money in circulation within an economy.
Gross Domestic Product
Gross domestic product describes the overall economic value of the goods and services produced by a country. GDP is also a measure of spending by a government and its citizens along with the financial impact of trade and investments within a nation. GDP is usually calculated annually.
Business Cycle
Predictable economic patterns of growth, recession and recovery are referred to as the business cycle. This cycle impacts economic markets and can be observed through periods of low unemployment and high production rates that turn to high unemployment and low production and back again to economic growth.
Inflation
Inflation describes an increase in the average cost of goods or services over a period of time. Inflation that occurs rapidly is a measure of economic instability or downturn while steady inflation is usually predicted as a normal economic factor.
Employment
The unemployment rate of a country offers an indication of the economic health of a nation. A higher employment rate versus those unemployed indicates a stronger economy. When a majority of citizens are employed, their spending increases the amount of money in circulation and boosts the economy.
Interest Rates
The value of a nation’s currency greatly affects the health of its economy. Interest rates reflect the amount of return earned by investing money within a country’s financial system. Higher interest rates indicate a higher value for the currency of a national economy.
Industrial Production
Depending on the main industries of a country, the production of goods from these facilities contributes to the economic fluctuations of a nation. This macroeconomic factor can also indicate market volatility.
National Income
National income is the combined amount of money a country generates within its economy. This figure helps economists measure economic growth along with standards of living for citizens including income distribution.
Retail Sales
Retail sales indicate how much citizens are spending. Business traders watch spending reports to gain insight into the overall health of an economy. Retail is the direct marketplace for domestic goods and services. When retail sales increase, so does economic growth.
