A Beginner’s Guide to Macroeconomics | Social Studies

June 1, 2016

A Beginner’s Guide to Macroeconomics | Social Studies

Macroeconomics is a branch of the economic field that studies large-scale or general economic factors.

You may recall our Beginner’s Guide to Microeconomics and Microeconomics: Part II blog posts. Before we dive into the specifics on macroeconomics, it’s important to understand the difference between these two fields of economic study.

  • Remember that microeconomics focuses on smaller factors that affect individuals and companies.
  • By contrast, macroeconomics focuses on larger factors, such as the structure, performance, and behavior of the whole economy.

In preparation for the TASC Test Assessing Secondary Completion™, let’s discuss key macroeconomic terms and concepts:


Aggregate Supply and Demand

Aggregate simply means total. An aggregate is formed or calculated by the combination of many separate units or items. According to InvestopediaTM:

  • Aggregate supply is the total supply of goods and services produced within an economy at a given overall price level in a given time period.
    • Aggregate supply is represented by the aggregate-supply curve:


Image via CliffsNotes.com.

 

  • Aggregate demand is the total amount of goods and services demanded in the economy at a given overall price level and in a given time period.
    • Aggregate demand is represented by the aggregate-demand curve:

      Image via Cliffnotes.com


Gross Domestic Product (GDP)

Investopedia defines gross domestic product (GDP) as one of the primary indicators of the health of a country's economy. The GDP “represents the total dollar value of all goods and services produced over a specific time period.” Generally, the GDP is thought of as the size of the economy. The GDP impacts almost everyone within a given economy.

  • A healthy economy has low unemployment rates and employees generally see wage increases because as the economy grows, businesses demand labor.
  • A poor economy typically sees high unemployment rates and employees may be laid off or not able to get wage increases because businesses are losing demand and profits.


Gross National Product (GNP)

According to Investinganswers.com, the “gross national product (GNP) is a broad measure of a nation's total economic activity.” The GNP is the total money value of all finished goods and services produced in a country in one year by its residents.

The GNP is calculated from this formula:

Consumption + Government Expenditures + Investments + Exports + Foreign Production by U.S. Companies – Domestic Production by Foreign Companies = Gross National Product


Circular Flow Diagram 

A circular flow diagram is used in economics to show how an economy functions. According to Study.com, “it looks at the way money, goods, and services move throughout the economy.” The diagram has two main characters: firms (meaning producers) and households (meaning consumers):

Image via Policonomics.com. Watch a short video on how a circular flow diagram works at Study.com 


The Federal Reserve

The Federal Reserve (FED) is the central bank of the United States and controls the nation's money supply by enacting monetary policy, according to Investopedia.

Macrobasics.com notes that monetary policy is the contraction or expansion of the money supply in order to affect various aspects of the economy and achieve macroeconomic goals.

Can’t get enough of the study of economics? Watch this short video on the introduction to economics from the Khan Academy, discussing both macro and microeconomics. Stay tuned for our Macroeconomics: Part II blog post. 

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