Macroeconomics, Unemployment, Inflation - Essay Example

The factors often influence each other.
As opposed to microeconomics, which is mainly concerned with actions of individual factors such as consumers, firms, and how consumer behavior determines quantities and prices in specified markets, macroeconomics is broad in scope. It is, therefore, aimed at providing an understanding of the causes and consequences of changes in national incomes as well as understanding the major determinants of economic growth (Marshall 10).

Macroeconomists have developed a variety of models that tend to explain the relationships between the various economic factors. These models have been helpful to governments and large corporations in developing and evaluating their economic policies as well as business strategies. As such, macroeconomics covers a variety of concepts. However, the three major concepts and variables are output, unemployment, and inflation (Marshall 15).

Regarding output and income, national output refers to the total value of everything that is produced within a given country in a specified period. This output generates income. Thus, output and income are generic terms used interchangeably as they are deemed to imply the same thing (Marshall 17). In macroeconomics, output is measured by Gross Domestic Product (GDP).

On the other hand, unemployment is measured by the rate of unemployment. It refers to the percentage of people who lack jobs in the labor force of a given economy (Marshall 19). Thus, unemployment may be categorized into various types based on the different causes. For instance, classical unemployment occurs when wages are so high that employers become unwilling to hire more workers. Similarly, frictional unemployment occurs when workers take too long to find a job, so they experience long periods of unemployment. Another type is structural unemployment. It is when people become unemployed as a consequence of a myriad of factors such as possessing skills that are not required in the job market (Marshall 21).

Finally, inflation refers to a general price increase of commodities across the whole economy (Marshall 23). The opposite of inflation is referred to as deflation. This is when there is a general decrease in prices across the entire economy. Inflation may occur in instances where the economy accelerates and grows too fast. Conversely, deflation is caused by a tremendously declining economy. Thus, to avoid instances of inflation or deflation, central banks control the supply of money through the use of various monetary policies. For example, reducing the money supply or raising the rates of interest in an economy may reduce inflation on a massive scale.

In conclusion, macroeconomics is an economic discipline that examines the entire economy. This is done by examining economy-wide factors such as national income, unemployment and inflation. Read More