marco economic variables

Gross Domestic Product - GDP
What Does It Mean?
What Does Gross Domestic Product - GDP Mean?
The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

GDP = C + G + I + NX

where:

"C" is equal to all private consumption, or consumer spending, in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital
"NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)
National Income Accounting
What Does It Mean?
What Does National Income Accounting Mean?
A term used in economics to refer to the bookkeeping system that a national government uses to measure the level of the country's economic activity in a given time period. National income accounting records the level of activity in accounts such as total revenues earned by domestic corporations, wages paid to foreign and domestic workers, and the amount spent on sales and income taxes by corporations and individuals residing in the country.
Investopedia Says
Investopedia explains National Income Accounting
National income accounting provides economists and statisticians with detailed information that can be used to track the health of an economy and to forecast future growth and development. Although national income accounting is not an exact science, it provides useful insight into how well an economy is functioning, and where monies are being generated and spent.

Some of the metrics calculated by using national income accounting include gross domestic product (GDP), gross national product (GNP) and gross national income (GNI).


Aggregate Demand
What Does It Mean?
What Does Aggregate Demand Mean?
The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally there is a negative relationship between aggregate demand and the price level. Also known as "total spending".
Investopedia Says
Investopedia explains Aggregate Demand
Aggregate demand is the demand for the gross domestic product (GDP) of a country, and is represented by this formula:

Aggregate Demand (AD) = C + I + G (X-M) C = Consumers' expenditures on goods and services. I = Investment spending by companies on capital goods. G = Government expenditures on publicly provided goods and services. X = Exports of goods and services. M = Imports of goods and services.
Aggregate Supply
What Does It Mean?
What Does Aggregate Supply Mean?
The total supply of goods and services produced within an economy at a given overall price level in a given time period. It is represented by the aggregate-supply curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally, there is a positive relationship between aggregate supply and the price level. Rising prices are usually signals for businesses to expand production to meet a higher level of aggregate demand.

Also known as "total output".
Investopedia Says
Investopedia explains Aggregate Supply
A shift in aggregate supply can be attributed to a number of variables. These include changes in the size and quality of labor, technological innovations, increase in wages, increase in production costs, changes in producer taxes and subsidies, and changes in inflation. In the short run, aggregate supply responds to higher demand (and prices) by bringing more inputs into the production process and increasing utilization of current inputs. In the long run, however, aggregate supply is not affected by the price level and is driven only by improvements in productivity and efficiency.
Related Terms
Change In Supply
What Does It Mean?
What Does Change In Supply Mean?
A term used in economics to describe when the suppliers of a given good or service have altered their production or output. A change in supply can be brought on by new technologies, making production more efficient and less expensive, or by a change in the number of competitors in the market.
Investopedia Says
Investopedia explains Change In Supply
A change in supply will lead to a shift in the supply curve, which will cause an imbalance in the market that is corrected by changing prices and demand. If the change in supply increases supply, you will see the supply curve shift to the right, while a decrease in supply from a change in supply will shift the supply curve left.

For example, if there is a new technology that makes the production of DVD players a lot cheaper, according to the law of supply, there will be an increase in the output of DVD players. With more outputs in the market, the price of DVD players will likely fall, creating greater demand in the marketplace and more overall sales of DVD players.
Consumer Price Index - CPI
What Does It Mean?
What Does Consumer Price Index - CPI Mean?
A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

Sometimes referred to as "headline inflation".

Investopedia Says
Investopedia explains Consumer Price Index - CPI
The U.S. Bureau of Labor Statistics measures two kinds of CPI statistics: CPI for urban wage earners and clerical workers (CPI-W), and the chained CPI for all urban consumers (C-CPI-U). Of the two types of CPI, the C-CPI-U is a better representation of the general public, because it accounts for about 87% of the population.

CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. This is because large rises in CPI during a short period of time typically denote periods of inflation and large drops in CPI during a short period of time usually mark periods of deflation.


Cost-Push Inflation
What Does It Mean?
What Does Cost-Push Inflation Mean?
A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
Investopedia Says
Investopedia explains Cost-Push Inflation
Cost-push inflation develops because the higher costs of production factors decreases in aggregate supply (the amount of total production) in the economy. Because there are fewer goods being produced (supply weakens) and demand for these goods remains consistent, the prices of finished goods increase (inflation).
Demand-Pull Inflation
What Does It Mean?
What Does Demand-Pull Inflation Mean?
A term used in Keynesian economics to describe the scenario that occurs when price levels rise because of an imbalance in the aggregate supply and demand. When the aggregate demand in an economy strongly outweighs the aggregate supply, prices increase. Economists will often say that demand-pull inflation is a result of too many dollars chasing too few goods.
Investopedia Says
Investopedia explains Demand-Pull Inflation
This type of inflation is a result of strong consumer demand. When many individuals are trying to purchase the same good, the price will inevitably increase. When this happens across the entire economy for all goods, it is known as demand-pull inflation.


Keynesian Economics
What Does It Mean?
What Does Keynesian Economics Mean?
An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.
Investopedia Says
Investopedia explains Keynesian Economics
A supporter of Keynesian economics believes it is the government's job to smooth out the bumps in business cycles. Intervention would come in the form of government spending and tax breaks in order to stimulate the economy, and government spending cuts and tax hikes in good times, in order to curb inflation..


ISLM Model
What Does It Mean?
What Does ISLM Model Mean?
A macroeconomic model that graphically represents two intersecting curves, called the IS and LM curves. The investment/saving (IS) curve is a variation of the income-expenditure model incorporating market interest rates (demand for this model), while the liquidity preference/money supply equilibrium (LM) curve represents the amount of money available for investing (supply for this model).
Investopedia Says
Investopedia explains ISLM Model
The model attempts to explain the investing decisions made by investors given the amount of money they have available and the interest rate they will receive. Equilibrium occurs when the amount of money invested equals the amount of money available for investing.

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Money Supply
What Does It Mean?
What Does Money Supply Mean?
The entire quantity of bills, coins, loans, credit and other liquid instruments in a country's economy.
Investopedia Says
Investopedia explains Money Supply
Money supply is divided into multiple categories - M0, M1, M2 and M3 - according to the type and size of account in which the instrument is kept. The money supply is important to economists trying to understand how policies will affect interest rates and growth.

Liquidity Squeeze
What Does It Mean?
What Does Liquidity Squeeze Mean?
When concern about the short-term availability of money causes reluctance among financial institutions to lend out money from their reserves. This hold on reserves causes the interbank market rate to rise, making it more expensive for banks to borrow from each other. Ultimately, this causes credit standards to tighten, making it more difficult and expensive for consumers to receive loans.
Investopedia Says
Investopedia explains Liquidity Squeeze
In order to limit the impact of liquidity squeezes, central banks will often increase liquidity by injecting more money into the economy through lower interest rates. Doing so gives financial institutions a less expensive alternative to borrowing. This process also serves to alleviate the fear of insufficient liquidity in the short run and make bank loans more accessible to consumers and businesses.

M0
What Does It Mean?
What Does M0 Mean?
A measure of the money supply which combines any liquid or cash assets held within a central bank and the amount of physical currency circulating in the economy. In the United Kingdom, the M0 supply is also referred to as narrow money.
Investopedia Says
Investopedia explains M0
M0 (M-zero) is the most liquid measure of the money supply. It only includes cash or assets that could quickly be converted into currency. This measure is known as narrow money because it is the smallest measure of the money supply.

M1
What Does It Mean?
What Does M1 Mean?
A category of the money supply that includes all physical money such as coins and currency; it also includes demand deposits, which are checking accounts, and Negotiable Order of Withdrawal (NOW) Accounts.
Investopedia Says
Investopedia explains M1
This is used as a measurement for economists trying to quantify the amount of money in circulation. The M1 is a very liquid measure of the money supply, as it contains cash and assets that can quickly be converted to currency.

M2
What Does It Mean?
What Does M2 Mean?
A category within the money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.
Investopedia Says
Investopedia explains M2
M2 is a broader classification of money than M1. Economists use M2 when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions.
M3
What Does It Mean?
What Does M3 Mean?
The category of the money supply that includes M2 as well as all large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets.
Investopedia Says
Investopedia explains M3
This is the broadest measure of money; it is used by economists to estimate the entire supply of money within an economy.

Monetary Policy
What Does It Mean?
What Does Monetary Policy Mean?
The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates.
Investopedia Says
Investopedia explains Monetary Policy
In the United States, the Federal Reserve is in charge of monetary policy.
Open Market Operations - OMO
What Does It Mean?
What Does Open Market Operations - OMO Mean?
The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the opposite.
Investopedia Says
Investopedia explains Open Market Operations - OMO
Open market operations are the principal tools of monetary policy. (The discount rate and reserve requirements are also used.) The U.S. Federal Reserve's goal in using this technique is to adjust the federal funds rate--the rate at which banks borrow reserves from each other.