Macroeconomics is the study of how money and finance affect society on a large scale. It involves the study of how money is created, borrowed, invested and spent. While microeconomics deals with economic issues on a personal or business-level, macroeconomics looks at the larger issues of how all people, businesses and government interact financially. It looks at such issues as aggregate supply and demand.
Budget Surplus and Deficits
Macroeconomics deals with the budgets of governments. For the most part, a government should not be running at too high of a budget surplus, as that could indicate that citizens are being overtaxed. However, when a government runs a budget deficit, it must find ways to finance that deficit. That additional expense must be passed on to taxpayers. Often budget deficits are financed with debt.
Governmental debt is often the way that budget deficits are financed. Debt typically takes the form of bonds and other securities. Economists monitor the ratio of a country's' debt to the gross domestic product. When debt becomes too great a percentage of the GDP, interest payments increase and the money government spends is diverted to debt financing rather than other options.
Trade policies are an important issue in the study of macroeconomics. Trade agreements dictate what type of freedoms or restrictions governments place on economic trade between countries. Trade policies include the levying of tariffs, currency exchange and quotas. Examples of unions or agreements that affect trade include the European Union, the North American Free Trade Agreement, Mercosur, the Association of Southeast Asian Nations, and the Common Market of Eastern and Southern Africa.
Employment is a large macroeconomics category that includes everything from unemployment figures to productivity. In the United States, the Bureau of Labor Statistics tracks employment-related statistics and trends. Some key figures that help track the employment health of a nation include consumer price index, unemployment rate, average hourly earnings, productivity, producer price index and employment cost index. Economists theorize that employment levels are related to what consumers are willing to spend; aggregate output and aggregate expenditure are closely related and dictate how much hiring occurs (assuming hat there is a closed economy with no government involvement or foreign trade).
Inflation occurs when prices across a market increase. This causes the value of money to decrease and people do not have as much purchasing power as they did before. Governments will often try to control inflation by lowering interest rates. When it is cheaper for businesses to borrow money, their costs decrease, allowing them to sell things at a lower price. Other potential causes of inflation include a depreciation in the exchange rate, taxes, government spending, uneven economic growth in other countries, an increase in the cost of supplies and an increase in labor costs.
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