Like every field in education, macroeconomics has its own fundamentals and it is much better if you will supply up your brain with the macro knowledge understanding first the basics.Studying macroeconomics is like taking a picture of the whole economy in your mind. In short you have to consider the "aggregates."
=Macroeconomic Fundamentals=
• Productivity and Growth
“What determines an economic growth?”
The aggregate output includes the total goods and services that a country produced in a given period of time, flow of investments, the aggregate savings and net exports of a country ( exports must exceed imports). All of these contribute to the growth of a country. Thus, to measure the entire output of the economy, Gross Domestic Product (GDP) is the most comprehensive estimate. GDP has two variants: nominal and real GDP. When nominal GDP is adjusted, it gives the real GDP. Gross Domestic Product (GDP) - equals the total value of goods and services produced in a country during a year. Economic growth is, therefore, a sustainable increase in the amount of goods and services produced in an economy over time. Development theories have started to look beyond GDP per capita as a sole measure of progress and to think about other measures, such as health-care availability, educational attainment, and equality of income distribution.
• Unemployment and Inflation
In macroeconomics you will have a better picture of the ups and downs of the economy, these two phenomena (Unemployment and Inflation) affect greatly the economic activities in the country. Unemployment Rate- it is a key indicator of the condition of the labor market. It is defined as the percentage of people willing to be employed at the prevailing wage rate, yet not capable of finding job opportunities. A low unemployment rate is an indication of good economic performance. Thus, keeping workers employed is always a chief concern of economic policymakers. Unemployment rises during recession and falls during expansions. Inflation is an increase in the overall level of prices measured by the consumer price index- shows how the value of money changes over time. Inflation is one of the primary concerns of economists and policymakers because it imposes a variety of costs on the economy. When the inflation rate is high, the real values of money oppress. People on fixed incomes, cannot keep up with the rising cost of living. Inflation also sorts out wealth among the population in a way that has nothing to do with advantage. When there is a sustained period of inflationary pressure, lenders and workers lose while borrowers and employers benefit because many work and loan contracts in the economy are specified in terms of money. Another cost of inflation is that it discourages saving. The income tax treats the nominal interest earned on savings as income, even though part of the nominal interest rate merely compensates for inflation. This reduces the after-tax real interest rate, and hence makes saving less attractive.
• Aggregate Supply and Demand
Aggregate supply refers to the sum of all goods and services that firms are willing to sell at all possible price levels. Imagine an aggregate supply curve which is usually upward-sloping. Such curve is a result of the concept that quantity supplied rises as the price levels rises. This only explains that inflation is advantageous to firms. In order for firms to survive in a competitive economy in the short run, they must try to seek for profits. If prices are higher, firms are motivated to increase their outputs to produce higher profits. But the mere fact that you have millions of competitors and there is only a limited number of households buying for goods and services, the increase in outputs will lead to an economic surplus.
Aggregate demand is the total amount of goods and services that will be purchased at a given price level. No wonder why the curve is drawn as downward sloping because households would tend to buy more good and services when prices are lower. Aggregate demand comes from four demand sources (personal consumption, investments government spending and net exports). Furthermore if prices will continue to decrease and households demanded more, there will always be shortage in the economy.
• General Equilibrium
An economy is said to be in equilibrium if it shows the balance between opposing forces, whereas disequilibrium reflects lack of such balance. One important thing that equilibrium points out is the price stability. CPI (Consumer Price Index) is the most commonly used to measure the overall price level of the economy. It is the measure of the cost of different types of goods bought by an average consumer. When the inflation is high, the consumer’s purchasing power reduces
• Government Policy
Government plays an important role in the economy. Its function is to regulate the economic activities of the country. Here are the policies that they have implemented:
o Fiscal policy is the generation of revenues for the government. Taxes are the main source of income for the government. These taxes are imposed to the citizens of a country; it affects the economy, in terms of their income. These taxes are based from people’s income. Another is that taxes are imposed to goods and services example is the VAT.
o Monetary Policy - Second macroeconomic policy instrument is the monetary policy. It helps the government in managing nation’s money, credit and banking system.
o Exchange Rate Policy - This policy tackles the supply and demand function in exchange rates.
o Employment Policy - This was implemented for the government able to manage the employment level of the country.
