Macroeconomics

Macroeconomics is the study of large-scale economic issues, such as inflation, GDP (GDP), and unemployment. It helps form the basis of a large part of government economic policy.

Frequently Asked Questions
  • How do you calculate the GDP of a country?

    There are three main ways to calculate GDP, the production, expenditure, and income methods. The production method adds up consumer spending (C), private investment (I), government spending (G), then adds net exports, which is exports (X) minus imports (M). As an equation it is usually expressed as GDP=C+G+I+(X-M).

  • What are the four factors of production?

    The four factors of production are land, labor, capital and entrepreneurship.

  • What is the difference between nominal GDP and real GDP?

    Nominal gross domestic product (GDP) is the unadjusted GDP number. Whenever an economic figure is adjusted for inflation it is referred to as a real figure, so real GDP is nominal GDP adjusted for inflation.

  • What Is Purchasing Power Parity (PPP)?

    PPP is a way of measuring the price of goods and services between countries while adjusting for the relative exchange rates of their currencies. It is an attempt to better understand what people can buy and produce in a country without the differences in relative value of each country’s currency distorting it.

Key Terms

Dambisa Moyo
Who Is Dambisa Moyo?
Digital Divide
The Digital Divide: What It Is, and What's Being Done to Close It
Long Line of People at Unemployment Office
K-Shaped Recovery: Definition, K-Curve Chart Example, and Causes
Absolute Advantage
Absolute Advantage: Definition, Benefits, and Example
Calculating GDP With the Expenditure Approach
Calculating GDP With the Income Approach
Aggregate Supply
Aggregate Supply Explained: What It Is and How It Works
Bretton Woods Agreement
Bretton Woods Agreement and the Institutions It Created Explained
Contractionary Policy: A macroeconomic tool used to combat rising inflation.
What Is Contractionary Policy? Definition, Purpose, and Example
Cross Elasticity of Demand
Cross Price Elasticity: Definition, Formula for Calculation, and Example
Economic Growth
What Is Economic Growth and How Is It Measured?
Gross National Product
Gross National Product (GNP) Defined With Example
Marginal Propensity to Consume (MPC)
Marginal Propensity To Consume (MPC) in Economics, With Formula
Money Supply
Money Supply Definition: Types and How It Affects the Economy
Save money concept with hand man putting coin on stack set.
What Is the Multiplier Effect? Formula and Example
Philips Curve
The Phillips Curve Economic Theory Explained
Producer Price Index (PPI)
Producer Price Index (PPI): What It Is and How It's Calculated
close up of a hand using a calculator
Price Level: What It Means in Economics and Investing
What Is a Recessionary Gap? Definition, Causes, and Example
Velocity of Money: A measurement of the rate at which money is exchanged in an economy.
Velocity of Money: Definition, Formula, and Examples
Over shoulder close up of male office worker looking at laptop in office
Continuing Claims: What They Are and How They Work
Dependency Ratio
What Is the Dependency Ratio, and How Do You Calculate It?
IS-LM Model
IS-LM Model: What It Is, IS and LM Curves, Characteristics, Limitations
NAFTA
What Was the North American Free Trade Agreement (NAFTA)?
Per Captia GDP
GDP Per Capita: Definition, Uses, and Highest Per Country
Regression
What Is Regression? Definition, Calculation, and Example
US and China trade barrier, an action by a government that makes trade between the country and other countries more difficult, decoraton glass globe on US dollar and china yuan banknotes
What Is Purchasing Power Parity (PPP), and How Is It Calculated?
ATM
Exchange Rate Risk: Economic Exposure
Greenback: Definition, Origin, and History
Man Hand With Digital Tablet Analyzing Stock Market Growth
Economic Indicators That Help Predict Market Trends
Currency Exchange
Introduction to the International Fisher Effect
Federal Reserve Chair Benjamin Bernanke discusses Basel III during an open board meeting on July 2, 2013
Understanding the Basel III International Regulations
Spending a few dollars here and there doesn't seem like it will have an effect on your long term financial goals, but those frequent low-cost purchases can add up rather quickly if left unchecked. You would be wise to remember that a dollar today is worth more than a dollar tomorrow.
Strong Dollar: Advantages and Disadvantages
Burning money
What Impact Does Inflation Have on a Dollar's Value Over Time?
A dollar is overlaid on a newspaper clipping of a graph.
Explaining the World Through Macroeconomic Analysis
Basket of Goods: Commonly purchased consumer products and services whose prices are monitored to calculate inflation.
Basket of Goods: Definition, CPI Calculation, and Example
Currency Depreciation: When a currency falls in value compared to other currencies.
Currency Depreciation
Developed Economy: Countries with relatively high levels of economic growth and security.
What Is a Developed Economy? Definition, How It Works, HDI Index
Understanding General Equilibrium Theory & Its Alternatives
3d illustration of economic growth background
What Is an Inflationary Gap?
stacks of U.S. $100 notes
What Is M3? Definition, Liquidity, Disuse, and M Classifications
Account
Monetary Aggregates: Definition and Example
What Is the Neoclassical Growth Theory, and What Does It Predict?
particle three dimensional space
Rational Expectations Theory Definition and How It Works
Real Economic Growth Rate
Real Economic Growth Rate: Definition, Calculation, and Uses
Real Effective Exchange Rate (REER)
What Is the Real Effective Exchange Rate (REER) and Its Equation?
Midsection Businessmen Analyzing Charts on Laptop in Office
Wholesale Price Index (WPI): What It Is and How It's Calculated
Currency exchanges can make a big difference in the cost of your international trip.
Paper Money: Definition, History, Use, Need for It, and Examples
Finance vs. Economics: What's the Difference?
Team of workers examining housing project while working at construction site.
Participation Rate vs. Unemployment Rate: What's the Difference?
Money bag and wooden blocks with the word Credit on the scales. The concept of a successful loan. Correction and formation of credit history. Refinancing credits. Favorable interest rates.
Credit Cycles: Definition, Factors, and Use in Investing
Four Asian Tigers: What They Are, Economic Strengths Explained
Output Gap: What It Means, Pros & Cons of Using It, Example
Shoppers At The Post-Christmas Sales
Retail Sales: Definition, Measurement, and Use As an Economic Indicator
Supply-Demand Loop
Market Dynamics: Definition and Examples
Trough: Examples of Phase in Business Cycle
Quantity Theory of Money: Definition, Formula, and Example
Minting of Eisenhower Dollar Coin
Gresham's Law: Definition, Effects, and Example
Population
Working-Age Population: Definition, Importance, and Example
Business Documents on Office Table
Why Is the Consumer Price Index Controversial?