Macroeconomics Examples

Have you ever wondered how macroeconomic examples affect our daily life? Macroeconomics is the study of the economy as a whole. If the government tries to raise interest rates in order to combat creeping inflation, it will have a direct impact on you. How, you might ask? If interest rates are higher, then you will get more interest on your savings. However, if you plan to borrow money, then higher interest rates mean that you will have to pay more in interest. This is a macroeconomic decision example that affects you in everyday life. Read on to find out more relevant and interesting macroeconomic examples!

Examples of macroeconomic variables

Some examples of macroeconomic variables that are used all the time and you need to be aware of are:

• economic output
• unemployment
• inflation.

Let's go through each of them in turn and gauge how we can use them to inform ourselves about the macroeconomic climate as well as utilise them in our analysis of macroeconomic examples.

Economic output

Economic output is one of the most important macroeconomic variables.

But how is economic output measured? Counting the total sales in an economy in itself doesn't actually give the figure of the value added to the economy. This is because intermediate sales are counted twice in economic output. Let's consider an example below.

As you can see, the price of the vegetables is counted twice. Once when the farmer sold them and then when a restaurant sold them. Hence, while calculating national economic output, intermediate sales are subtracted from the total output. Gross domestic product (GDP) is a widely accepted measure of national economic output.

GDP as a measure of economic output

Gross domestic product (GDP) is often used as a measure of economic output.

There are different methods to calculate GDP. The most common method is the expenditure method, which looks at the demand side. According to that method:

\(GDP = C + I + G + (X – M)\)

Where,

\(C\) = Final consumption expenditure on all goods and services

\(I\) = Final investment expenditure

\(G\) = Government expenditure

\((X-M)\) = Net exports

Unemployment rate

The unemployment rate is another example of a macroeconomic variable. For every economy, there is an acceptable rate of unemployment. The acceptable rate of unemployment is when the economy is producing goods and services at its full capacity. This is called the natural rate of unemployment.

But what is unemployment?

The unemployment rate, denoted by \(U\) is calculated as follows:

\(U=\frac{\hbox{Unemployed population}}{\hbox{Working population + Unemployed population}} \times 100\)

The Argentine Great Depression happened between 1998– 2002. External crisis and implementation of bad monetary and fiscal policies pushed the Argentinian economy into a depression. After 2003, Argentina started promoting exports and tourism. This contributed hugely to the recovery of the economy. Argentina entered the recovery phase in 2009 and continued steadily improving its economy.

Crisis in Venezuela

The Venezuelan economy was highly dependent on oil exports, and the government used all the oil export income for government spending. However, due to the high exchange rates for oil, the demand for Venezuelan oil drastically decreased.

In 2010, it was not sustainable for the government to keep funding social projects. In 2014, Venezuela entered into a recession, and by 2016 inflation reached its highest point in the history of the country: 800%.³

Macroeconomic stability examples

Although there are many examples of macroeconomic issues and shocks, there are also great examples of macroeconomic stability.

Some examples of macroeconomic stability are:

• Chinese economy
• Nordic model
• Singapore economy

Chinese economy

In China, pure capitalism operates with state-owned enterprises. Manufacturing, labour, and agriculture are major contributors to the Chinese economy. China's sustained economic growth was often referred to as an 'economic miracle.'

Although the economic growth rate of China is now moving at a slower pace due to economic imbalances, environmental issues, and social imbalances, their economy is still growing.

China can tackle this by concentrating on making the economy more reliant on the service sector, promoting the private sector, and some fiscal reforms. According to the World Bank, China should concentrate on moving towards a sustainable and more carbon-neutral economy.

Nordic model

Now that you've learned so many macroeconomic examples as well as the most important variables let's apply those and take a look at some macroeconomic trends examples!

We will take a closer look at the following:

• UK unemployment
• UK post-Brexit

Unemployment in UK

The unemployment rate in the UK in the fourth quarter of 2021 stood at 4.1%. This means that there were more than 1.3 million unemployed people in the UK at the time. The unemployment rate in the UK is gradually following a downward trend. It is currently falling, but it is still yet to reach the pre-pandemic rate of 4%.⁴

Fig. 1 - Unemployment rates in the UK, 2006-2021. Source: Office for National Statistics⁴

Figure 1 above shows how unemployment in the UK was high in the years 2006 to 2013. It was gradually decreasing until the pandemic hit in 2020.

UK post-Brexit

The United Kingdom's economy is a free market economy where buyers and sellers make decisions and are not controlled by government policies. The service sector contributes 72.79% to this fifth-largest economy.⁵

The economy also relies on imports. Imports are double the exports in monetary value. The main imports are machinery, transportation equipment, food, fuel, and chemicals. The exports are cars, crude oil, and pharmaceuticals. The US and Europe are the main trading partners of the UK.

In the last few years, the growth of the UK economy has slowed down, and inflation is rising as a combined effect of Brexit and the Covid-19 pandemic.