Macroeconomics is the branch of economics which studies how the entire economy behaves. The key changing factors in macroeconomics are such as inflation, price levels, rate of growth, national income, gross domestic product (GDP) and changes in unemployment. These variables are very important in; determining the functioning of an economy, understanding and controlling economic variations, preparing the economic policies, controlling inflation and deflation, and studying of national income among others (Kurst, 2006). They also have significant role and consequence on the growth of foreign direct investment (FDI) inflows which is one of the common areas of interest for experts and personages in the economics and finance sectors; however, the objective of this study is basically to analyze these core macroeconomic variables, that is, inflation, price levels, rate of growth, national income, gross domestic product (GDP) and changes in unemployment.
Inflation
Inflation can be defined as a quantitative measure of the rate at which the average price level of chosen goods and services in a particular economy increases over a period of time. It is usually conveyed as a percentage and it shows a decline in the ability of a country’s currency to make purchase. When inflation occurs, the unit of money’s purchasing power also reduces.
The major types of inflation are; demand pull inflation which is the inflation resulting from high demand for goods and low unemployment, cost push inflation which is caused by abrupt reduction in the goods’ supply which in turn increases goods prices, and anticipated inflation which is characterized by an increase in the prices of goods since people expect them to rise.
The major cause of inflation is the increase in money supply to a point where it surpasses the economic growth (Akers, 2018). The other causes of inflation are; the national debt, demand-pull effect, cost-push effect, and exchange rates.
Calculation of the Inflation Rate
To calculate the inflation rate of a country, the inflation ‘calculator’ makes use of the monthly consumer price index (CPI) data of the desired goods from a given time period to the most current date to determine changes in their cost of consumer purchases. An increase in the cost is referred to as inflation, otherwise deflation.
Figure 1; Chart showing an increasing trend in various consumer price indices of commodities.
Price Levels
A price level is the mean of the latest prices of wide range of goods and services that are produced within the economy. It generally refers to perceived price of a particular good, service, or security that can be traded.
In order to calculate the Price Index, one must take into account the price of the Market Basket of the year to be selected and divide it by the base year’s Market Basket price, and then finally multiply it by 100 (Hall, 2018).
Price levels can give direct translation to inflation since inflation refers to a continual rise of the price-level. The inflation rate is obtained by weighing the price level in a specific time period to the price level of a period just before it.
National Income
National income is the total final output value of all new goods and services produced within a year in a particular country. Understanding the formulation of national income makes a strong basis for understanding the macroeconomics of a given country (Malik, 2013).
There are various measures of national income and output that are applied in economics to determine the overall economic activity within a nation or region, these measures include; GDP, gross national product, net national income, and adjusted national income.
Gross Domestic Product
GDP comprises the monetary value of all manner of goods and services produced within a country’s geographic boundary over a defined period of time. It is usually the known expansive quantitative measure of determining the total economic activity of a country.
To calculate for the GDP, one must also include the overall investments and expenditures on both exports and imports, where imports is deducted. GDP is given by the formula below;
GDP = private consumption + gross investment + government investment + government spending + (exports – imports)
GDP shares a close similarity to Gross National Product (GNP) as both attempt to evaluate the general market value of total goods and services produced for final sale in an economy; however, the difference occurs in how each of them interprets what constitutes the economy.
Figure 2; A chart showing projected GDP up to the year 2028
Changes in Unemployment
Citizens within a country also contribute hugely in the economy of their country, their effect can be felt when they are being laid off or progressively join labor market. Economic growth of a country decelerates during recession. Signs of an economy undergoing through recession period include a decline in stock prices, a drop in sales and revenues of businesses, dropping incomes among workers, and a high unemployment rate.
Unemployment thus directly affects a country by increase in poverty apart from other social and health problems like depression, low self-esteem, anxiety and other mental health issues, tension, and insecurity
Works Cited
Akers, Helen, “What Are Key Macroeconomic Variables?” November 08, 2018 Bizfluent, https://bizfluent.com/info-8180727-key-macroeconomic-variables.html Accessed 24 Nov. 2018
Hall, Mary, “Explaining The World Through Macroeconomic Analysis,” Investopedia, June 22, 2018, https://www.investopedia.com/insights/macroeconomic-analysis/ Accessed 24 Nov. 2018
Kunst, Robert, M., “Introduction to Macroeconomics” March 2006, https://homepage.univie.ac.at/robert.kunst/macro1.pdf Accessed 24 Nov. 2018
Malik, Saifullah " Malik, Qaisar, A. “Empirical Analysis of Macroeconomic Indicators as Determinants of Foreign Direct Investment in Pakistan,” IOSR Journal of Business and Management, ISSN: 2278-487X. Volume 7, Issue 2 (Jan. - Feb. 2013), PP 77-82, http://www.iosrjournals.org Accessed 24 Nov. 2018
Ndubuisi, Paul, “An Analysis of the Impact of Macroeconomic Variables and Foreign Direct Investment in Nigeria: A VECM Granger Causality Framework,” Journal of Business and Economic Development, 2017; 2(3): 187-197, doi: 10.11648/j.jbed.20170203.18, http://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20170203.18.pdf Accessed 24 Nov. 2018
