What are the different macroeconomic indicators?

Economists use unemployment and GDP as indicators when studying macroeconomics and business cycles.

Macroeconomics is a study of the aggregate in an economy in a specific nation. Economists use information gathered at the aggregate level to determine the strength of an economy and the current stage of the business cycle. Some different macroeconomic indicators include gross domestic product, inflation, unemployment and several others. Economists track and report these macroeconomic indicators on a quarterly and annual basis for many stakeholders. Trends and other movements – such as short-term spikes – help a nation diagnose economic problems and make corrections if necessary.

As unemployment rises, a nation’s GDP will fall.

Gross domestic product is often among the most commonly reported macroeconomic indicators. Its objective is to determine the market value of all goods produced by a nation in a given period of time. Growth occurs when the resulting numbers are positive, such as 2.1 or 4.3% for a given quarter. Higher numbers indicate greater growth, naturally. Negative gross domestic product values ​​are also possible, which indicate negative growth and a potential for a business cycle contraction.

Inflation is also a very important indicator; determines the purchasing power of currency for a given period. While natural economic growth can result in inflation, the most common occurrence of inflation comes from government intervention in mixed economies. Lowering interest rates or increasing the money supply can trigger inflation, traditionally defined as too many dollars in pursuit of too few goods. Macroeconomic indicators that track inflation may be a monthly rather than a quarterly calculation. This allows a nation to assess this important figure more frequently and make the necessary changes to avoid the negative effects of this economic problem.

See also  What is an S Corporation?

Unemployment is also an important indicator in macroeconomic terms. Here, nations want information about investments made by private sector companies. When unemployment goes down, more people are working and earning money, which eventually returns to the economy. Rising unemployment could signal companies that are unsure of the aggregate economy’s movements and are trying to downsize to remain profitable. As unemployment rises, a nation’s gross domestic product will fall and the economy may enter a period of contraction of potentially unknown duration.

The macroeconomic indicators above are all lagged indicators, meaning they report activity in the past. The significant disadvantages of lagged indicators mainly stem from the fact that the economy may have already changed since the calculation of the above indicators. That means the economy may actually be doing better or worse than the numbers indicate. Therefore, it can be difficult to truly determine the strength of an economy based on these indicators alone.

Leave a Comment