When the prices of goods increase, the consumers are the first to feel it. The prices increase due to various reasons such as an increase in demand, increase in production costs and other factors. Macroeconomics entails the observations of all the factors surrounding an economy. While microeconomics may focus on the economy of a single household, macroeconomics entails consideration of the entire national economy. Macroeconomics covers aspects that are often reported through the media such as inflation, financial crises and unemployment among others. The concept of economics is applicable where there is need for the distribution of limited resources. The application of economics at an individual level and of macroeconomics at the national level helps individuals and nations respectively to achieve the maximum level of needs available. While microeconomics focuses on the prices of goods as the main economic driver, the macroeconomic aspect focuses on several other aspects. The national output, described by the Gross Domestic Product is the key feature of macroeconomics.
The Gross Domestic Product (GDP) is calculated based on incomes of citizens living within the country. The GDP is composed of several factors which include income, investments, consumption, government purchases and net exports. The equation that provides the GDP equates the consumption of a country with the summation of the other revenue generating factors in the GDP construction. The consumption associated with a country includes all the funds allocated to services such as healthcare, education and other necessary government expenditures. Although two different types of GDP calculation are available, macroeconomics focuses only on the real GDP which entails all the aspects and caters for inflation. The nominal GDP on the other hand does not entail inflation calculations. The macroeconomic concept also takes into consideration the unemployment rate in a country. The level of unemployment is referred to as the percentage of the labor force in the country that is jobless (Kroon 88).
The labor force in the country includes people who have attained sixteen years of age and are seeking for jobs. The natural unemployment rate is said to be in equilibrium with the structure of the real wages in the country. Apart from the natural unemployment, there are also other types of unemployment rates. Cyclical and structural unemployment are also significant in macroeconomics. The structural unemployment refers to economical changes that result in employment loss in the economy. On the other hand, cyclical unemployment is that which arises as a result of down turns in business. Because of the differences in the types of unemployment, the unemployment level in a country is described through a time based function. In the recent times, the rate of natural unemployment in the U.S has risen, probably due to two reasons. First, the mismatch between the potential employers and the number of employees results in increased unemployment. In addition to this, many people also stay unemployed for long (Weidner 4).
Besides the aforementioned factors, macroeconomics also involves the consideration of inflation. Inflation affects all the other factors that entail macroeconomics. For instance, the relationship between unemployment and inflation is often described as controversial. The relationship is described through a curve referred to as the Phillips curve. This curve indicates that there is always a trade off of approximately 2 percent of inflation for increase in unemployment. This implies that a reduction in inflation translates to an increase in unemployment. Consequently, it is the objective of economists to maintain balance between the different factors that constitute macroeconomics. Rise in unemployment is favorable for stock trade during economic expansion but unfavorable during economic shrinking (Boyd and others 649).
Boyd, John H, Hu, Jian and Jagannathan, Ravi, “The Stock Market’s Reaction to Unemployment News: Why Bad News Is Usually Good for Stocks. The Journal of Finance, 60: 649–672, 2005. Web. doi: 10.1111/j.1540-6261.2005.00742.x
Kroon, George E. Barron’s Macroeconomics the Easy Way. Hauppauge, N.Y: Barron’s Educational Series, Inc, 2007. Print.
Weidner, Justin And Williams, John. C. What Is the New Normal Unemployment Rate? Economic Letter,Feb. 14, 2011. Web. 9 April 2013 https://www.frbsf.org/publications/economics/letter/2011/el2011-05.pdf
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