Macroeconomics

Macroeconomics is the study of large-scale economic issues, such as inflation, GDP (GDP), and unemployment. It helps form the basis of a large part of government economic policy.

Intro to Macroeconomics

Macroeconomics
Macroeconomics: Definition, History, and Schools of Thought

Frequently Asked Questions

  • How do you calculate the GDP of a country?

    There are three main ways to calculate GDP, the production, expenditure, and income methods. The production method adds up consumer spending (C), private investment (I), government spending (G), then adds net exports, which is exports (X) minus imports (M). As an equation it is usually expressed as GDP=C+G+I+(X-M).

    Learn More: How to Calculate the GDP of a Country
  • What are the four factors of production?

    The four factors of production are land, labor, capital and entrepreneurship.

    Learn More: Why Are the Factors of Production Important to Economic Growth?
  • What is the difference between nominal GDP and real GDP?

    Nominal gross domestic product (GDP) is the unadjusted GDP number. Whenever an economic figure is adjusted for inflation it is referred to as a real figure, so real GDP is nominal GDP adjusted for inflation.

    Learn More: Real GDP vs. Nominal GDP: Which Is a Better Indicator?
  • What Is Purchasing Power Parity (PPP)?

    PPP is a way of measuring the price of goods and services between countries while adjusting for the relative exchange rates of their currencies. It is an attempt to better understand what people can buy and produce in a country without the differences in relative value of each country’s currency distorting it.

    Learn More: What Is Purchasing Power Parity (PPP)?

Key Terms

  • Per-Capita Gross Domestic Product (GDP)

    Per-capita GDP is a measure of a country’s overall economic output per person. It’s calculated by taking the GDP and dividing it by the country’s population.

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  • Aggregate Demand

    Aggregate demand is the total demand for finished goods and services in an economy as measured by the monetary amount paid for those goods and services at a particular point in time.

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  • Multiplier Effect

    The multiplier effect refers to the phenomenon that adding or subtracting capital from the economy has a larger effect on economic production than the amount added or subtracted.

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  • IS-LM Model

    IS-LM is an economic model that helps show the interaction between interest rates and the economy.

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  • Balance of Payments (BOP)

    Balance of payments (BOP) is the sum of all economic activity done by individuals, companies, and governments within one country with people, companies and governments in other countries.

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  • Cross Elasticity of Demand

    The cross elasticity of demand is how much the demand for one good changes when the price of a different good changes.

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  • Regression

    Regression is a statistical method that determines the strength of the correlation between a dependent variable and one or more other, independent, variables.

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  • Economic Growth

    Economic growth is when more goods and services are produced somewhere than were being previously produced.

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  • Stagflation

    Stagflation is a period of persistently low economic growth and high inflation.

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Why Is Stagflation Bad for the Economy?
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Digital Divide
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K-Shaped Recovery: Definition, K-Curve Chart Example, and Causes
Absolute Advantage
Absolute Advantage: Definition, Benefits, and Example
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Understanding GDP Calculation: The Expenditure Approach Explained
Calculating GDP With the Income Approach
Aggregate Supply
Aggregate Supply: What It Is and How It Works
Bretton Woods Agreement
Bretton Woods Agreement and the Institutions It Created
Contractionary Policy: A macroeconomic tool used to combat rising inflation.
What Is Contractionary Policy? Definition, Purpose, and Example
Cross Elasticity of Demand
Cross Price Elasticity: Definition, Formula, and Example
Economic Growth
Understanding Economic Growth: Definition and Measurement
Gross National Product
Gross National Product (GNP): Definition and How It's Used
Marginal Propensity to Consume (MPC)
Understanding Marginal Propensity to Consume (MPC) in Economics
Money Supply
Understanding Money Supply: Types and Economic Impact
Multiplier Effect
What Is the Multiplier Effect? Formula and Example
Philips Curve
Understanding the Phillips Curve: Inflation and Unemployment Dynamics
Producer Price Index (PPI)
Producer Price Index (PPI): What It Is and How It's Calculated
Price Level: The average of current prices across the entire spectrum of goods and services produced in the economy.
Understanding Price Levels in Economics and Investing
Understanding Recessionary Gaps: Causes, Effects, and Solutions
Velocity of Money: A measurement of the rate at which money is exchanged in an economy.
Understanding the Velocity of Money: Definition, Formula, Real-World Examples
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Continuing Claims: What They Are and How They Work
Dependency Ratio
Understanding the Dependency Ratio: Definition and Calculation Guide
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Understanding the IS-LM Model: Curves, Characteristics, and Limitations
NAFTA
What Was the North American Free Trade Agreement (NAFTA)?
Per Capita GDP
GDP Per Capita: Definition, Uses, and Highest Per Country
Regression
Regression: Definition, Analysis, Calculation, and Example
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What Is Purchasing Power Parity (PPP), and How Is It Calculated?
ATM
Understanding Exchange Rate Risk: Navigating Economic Exposure
What Are Greenbacks? A Guide to U.S. Dollar History and Origin
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Economic Indicators That Help Predict Market Trends
Currency Exchange
Demystifying the International Fisher Effect: Interest Rates & Inflation
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Basket of Goods: Commonly purchased consumer products and services whose prices are monitored to calculate inflation.
Basket of Goods: Definition, CPI Calculation, and Example
Currency Depreciation: When a currency falls in value compared to other currencies.
Understanding Currency Depreciation: Causes and Effects
Developed Economy: Countries with relatively high levels of economic growth and security.
Developed Economy: Definition, How It Works, HDI Indicator
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General Equilibrium Theory Explained: Overview, Assumptions, & Alternatives
Inflationary Gap: The difference between the current real GDP and the GDP of an economy operating at full employment.
What Is an Inflationary Gap?
M3: A a measure of the money supply that includes M2 plus large time deposits, institutional money market funds, short-term repos, and larger liquid assets.
What is M3 Money Supply? Definition, Components, and Economic Role
Neoclassical Growth Theory: The concept that economic growth is the result of labor, capital, and technology.
Understanding Neoclassical Growth Theory: Key Drivers and Predictions
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Understanding Rational Expectations Theory: Key Concepts and Applications
Real Economic Growth Rate
Real Economic Growth Rate: Definition, Calculation, and Uses
Real Effective Exchange Rate (REER)
Real Effective Exchange Rate (REER): Definition, Formula, and Importance
Wholesale Price Index (WPI): An inflation indicator that measures change in the overall price level of goods before they are sold at retail.
Understanding the Wholesale Price Index: Definition and Calculation
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Paper Money Explained: Definition, History, and Examples
Finance vs. Economics: What’s the Difference?
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Understanding Participation Rate and Unemployment Rate Differences
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Understanding Credit Cycles: Key Phases, Factors, and Strategic Use in Investing
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Understanding the Output Gap: Meaning, Pros & Cons, and Real-World Examples
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Retail Sales: Definition, Measurement, and Use As an Economic Indicator
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Understanding Market Dynamics: Definition, Examples, and Economic Impact
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Trough: Examples of Phase in Business Cycle
Quantity Theory of Money: A theory that variations in price relate to variations in the money supply.
Understanding the Quantity Theory of Money: Key Concepts, Formula, and Examples