Slide 3 of 16
Associate macroeconomics with studying the “forest” as a whole. We can study the “general health of the forest”, the “general growth rate of the forest”, determine which portions of the “forest” might be having some trouble(disease, or pest problems). Rather than looking at individuals (trees), or small groups of individuals (clumps of trees); macroeconomics focuses on how well the economy as a whole is functioning and in what direction the economy may be heading.
We measure the economy’s value of total output, or Gross Domestic Product (GDP), from year to year to determine if the U.S. economy is expanding (growing) or contracting (shrinking). GDP is the monetary value of all the goods and services produced within the boundaries of the U.S. Therefore, GDP is the value of the production of all U.S. companies producing goods and services (G&S) within the U.S., as well as all foreign owned companies (Honda for example) that produce G&S within U.S. Think about it. Foreign owned companies hire U.S. workers to produce their goods and services.
Economists like to see the U.S. economy grow at what is called a “sustainable rate” believed to be around 2.5% per year. Some economists believe that if growth exceeds 2.5% per year for very long, inflation will occur. Other economists currently believe that the sustainable rate of economic growth for the U.S. is greater than 2.5%. As the economy grows, new jobs are created and unemployment rates tend to decrease.