Macroeconomic Issues

Current Macroeconomic Issues

What constitutes the current macroeconomic issues? Now, we have said that the macroeconomic issues include GDP, unemployment, and inflation. However, what are these? And what makes them issues? Let's find out.

Real Gross Domestic Product as a macroeconomic issue

When economists mention the GDP, they often mean real GDP. This is because the real GDP is different from the nominal GDP, and we will explain this. The real GDP is a measure of the value of all final goods and services produced in an economy during a given period, often a year.

The real GDP is one of the macroeconomic issues because it is an important indicator of whether the economy's output is growing or declining. Obviously, if the economy's output is declining, then we have a serious problem on our hands, and this is why economists are so concerned about the real GDP. How will we know if the economy's output is growing or declining? Simple, we will compare the previous year's real GDP to the current year's real GDP.

So, we know how the real GDP is one of the macroeconomic issues. But why do we add "real" to it? Let's explain.

Economists determine the real GDP by first computing the nominal GDP, which is the dollar value of all goods and services an economy produces in a given year, based on the prices when those goods and services were produced.

After determining the nominal GDP, economics takes into consideration the changes in prices that occur over different years. Therefore, real GDP uses a constant value for the economy's output. This gives a true picture of the GDP, whose goal is to measure the real value of an economy's output. Consider the following example.

Let's look at another example.

Coffee Processing, Pixabay

Unemployment as a macroeconomic issue

Unemployment is an important macroeconomic issue as it means that the country is not using one of its largest inputs - labor. Unemployment means that an individual is unable to get a job even though they are willing to work and are actively looking for work.

So, why is this a macroeconomic issue?

First of all, the goal of economics is to satisfy the needs of the people with the limited resources available. If the economy is not able to satisfy the job needs of the people, then it is failing. So, you can imagine why economists take unemployment so seriously.

Second of all, labor is one of the factors of production, if the economy is leaving some labor on the table unused, then it is not producing to its optimal potential, and something needs to be done about it.

Outside these typically economic considerations, economists also suggest that high rates of unemployment can contribute to high rates of crime, political unrest, high rates of depression, and generally poor well-being for unemployed people.

Homelessness, Pixabay

So, you see how unemployment just ruins everything? It is a macroeconomic issue you would want to fix as an economist!

Macroeconomic Issues Inflation

Inflation is a serious macroeconomic issue because it represents a rise in the overall level of prices in an economy.

Inflation is a real problem because it makes life difficult for people. Let's see how this happens using an example.

The above example describes the problem caused by inflation. If the prices of goods increase suddenly and the income of households remains the same, the households struggle to survive since they can't afford the same quantities they used to buy with their income. Therefore, in the above example, the family will go hungry at some point since they only have 2 bags, but they actually need three bags of rice.

Macroeconomic Issues in the US

The macroeconomic issues in the US involve real GDP, unemployment, and inflation. The government, therefore, has to ask and answer a series of related questions to address these issues. Let's briefly mention some of these issues here.

In the US, the government is concerned with:

1. Reducing the impact of recessions by reducing fluctuations in the short-run - The government seeks to reduce how often market conditions change within a year. This helps reduce the pressure felt by the people in terms of inflation and unemployment.
2. Reducing short-run fluctuations through monetary policy - The government seeks to alleviate the effects of macroeconomic fluctuations by manipulating interest rates, tax rates, or government spending.
3. Maintaining economic growth in the long run - The government is concerned with ensuring that the economy constantly grows, as declines in growth result in unwanted issues like inflation and unemployment.
4. Managing the trade-off between lower unemployment rates and higher inflation rates - As more people work, they have higher spending power and demand more. This results in increased prices, hence, inflation. Therefore, the government seeks to manage the trade-off between unemployment and inflation.

Example of Macroeconomics Issue

Let's look at an example showing why inflation is a macroeconomic issue.

From the above example, inflation has occurred in the short-run, and the family can now only afford 20 bottles of water in that month. This means that the cost of living has risen to a point the household can no longer afford to consume the same quantity of goods as it did before the inflation kicked in.