Macro economic variables Macro economic variables

Macro economic variables

Macroeconomic variables:-

    The variables which are used to evaluate the performance and analyze the behavior of the whole economy are called macroeconomic variables. There are numerous macroeconomic variables and among them, some important variables are explained as follows:

1. Aggregate demand and aggregate supply
       The aggregate demand refers to the number of goods and services that household, firms, government, and foreign sector wants to purchase at each price level and aggregate supply refers to the number of goods and services that firms choose to produce and sell at each price level.

2. Gross domestic product (GDP)
       GDP Is defined as the market value of all the final goods and services produced within a domestic territory in a year. It is measured in nominal and real terms. Nominal GDP is defined as the GDP measured at current year price whereas, real GDP is measured at previous year’s or base year’s price.

3. Per capita income (PCI)
     PCI is defined as the national income divided by the total population of a country. It is usually expressed in US dollars.

                  PCI = NI/ Total Population

4. Economic growth rate
      The economic growth rate is defined as the rate at which the real GDP of a country increases over a period of time. The higher economic growth rate is achieved by increasing the production factors and their productivity.

5. Price level
    Price level refers to the average price of goods and services which are consumed. The rise in price level is called inflation and the fall in price is called deflation.

6. Employment and unemployment
    The rate of unemployment shows the percentage of the total workforce of the country that unemployed. The rate of unemployment shows the percentage of the active workforce that is out of a job despite a willingness to work.

7. Balance of trade and balance of Payment
     The balance of trade is defined as the difference between import and export of a country over a given period of time. Balance payment refers to the systematic record of receipt and payment of a country with the rest of the world.

8. Demand for and supply of money
  Demand for money is defined as the desire of holding financial assets in the form of money I.e. cash or bank deposited.  The money supply is defined as the total quantity of money available in the economy. In a narrow sense, money consists of coins, paper currency, and all the demand deposits. In a broad sense, money includes narrow money and deposits.

9. Trade cycle or business cycle

       Trade cycle is defined as the regular upward and downward movement in aggregate economic activities in the country. More precisely it refers to the functions in the total national output, income, employment, saving, investment, consumption etc.

Trade cycle can be explained by the help of following diagram :-


In the above diagram, we can see the four phases of trade cycle which are explained as follows :-

i. Depression
      In this phase, all the aggregate economic activities fall to lowest level. It is not desirable in any economy.

ii. Recovery
     In this stage, all aggregate economic activities begin to rise.

iii. Prosperity
     In this phase, all aggregate economic activities increase to the high level. This stage is desirable in the economy.

iv. Recession
    In this phase, all aggregate economic activities begin to decline.

10. Government budget
    Government budget is defined as the statement of the financial plan of the government relating to its income and expenditure. It consists of report of revenue and expenditures of the previous, current fiscal years and estimate for the coming fiscal years.

11. Consumption, Saving and Investment
     Consumption is defined as the part of national income which is spent on goods and services to derive satisfaction. Saving is defined as the part of national income which is not spent on consumption. Investment is defined as the part of national income which is spent on purchase of those goods which are used for further production.

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