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Macroeconomics Essay

1598 words - 6 pages

Six key variablesYou can get a very good idea of the pulse of economic activity by looking at only six key economic variables: six variables that together give a very large chunk of the significant information about the macroeconomy. These six variables are:Real Gross Domestic ProductThe unemployment rateThe inflation rateThe interest rateThe level of the stock marketThe exchange rate.Real GDPThe first key quantity is the level of real Gross Domestic Product, called "real GDP" for short, and often referred to as just "GDP."Let's unpack the definition of real GDP word-by-word.Real GDP divided by the number of workers in the economy is our best readily-available index of the status of the economy: how well the economy is doing as a social mechanism for producing goods and services that people find useful: the necessities, conveniences, and luxuries of life.U.S. Real GDP per WorkerMeasured at 1995 prices, all economic forecasts are that U.S. real GDP per worker--the total value of all final goods and services produced in the United States, divided by the number of workers in the labor force--will kiss $60,000 in the year 2000. This marks more than a quadrupling of real material standards of living since 1900, when real GDP per worker at 1995 prices was some $13,000 according to standard estimates.Other features of macroeconomic history are visible on the graph below--the Great Depression of the 1930s, the World War II boom, the period of stagnation following the 1973 OPEC oil price increase punctuated by the 1974-75 and the 1980-82 recessions--but there is no doubt that the principal event of the twentieth century was the more-than-quadrupling of real GDP per worker.Source: Angus Maddison (1995), Monitoring the World Economy (Paris: OECD), as extended.The Unemployment RateThe second key quantity is the unemployment rate.The unemployed are all people looking actively looking for jobs who have not yet found one (or not yet found one that they find attractive enough to take rather than continue to look for a better).The number of unemployed divided by the total labor force--the unemployed plus those people at work--is the unemployment rate.In the United States every month the Labor Department's Bureau of Labor Statistics conducts the Current Population Survey: a random survey of America's households. The estimated of unemployed from the survey is then divided by the estimated labor force from the survey, and the result is that month's unemployment rate. Last month's unemployment rate is usually the biggest single piece of economic news when it is released, on the first Friday of every month.An economy with no unemployment would not be a good economy. Just as an economy needs inventories of goods--goods in transit, goods in processes, goods in warehouses and sitting on store shelves--in order to function smoothly, so an economy needs "inventories" of jobs-looking-for-workers ("vacancies") and of workers-looking-for-jobs ("the unemployed"). An economy in...

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