Two of the most important macroeconomic concepts in the popular media are
inflation and unemployment. In fact, it is difficult to read through
the business section of the newspaper or watch the evening news without hearing
at least one of these ideas mentioned.
Why are people so concerned with inflation and unemployment? These
macroeconomic concepts affect every person in the economy. When inflation is
high, prices increase rapidly and interest rates rise. When unemployment is
high, joblessness is high and people are out of work. A report of high
inflation or high unemployment causes concern at some level to most consumers.
In short, inflation and unemployment bear directly upon the wealth and
standard of living of people within the economy.
But how do these concepts fit into the bigger picture of macroeconomics?
Inflation affects the purchasing power of money over time; interest rates,
savings, and consumption are closely tied to the inflation rate both in theory
and in practice. Similarly, the unemployment rate is an important variable in
economic growth and is even linked to the inflation rate. Most importantly,
both of these variables are useful in expressing and comparing the state of the
economy to past and present, yet are simple enough to be accessible to the
average informed consumer.
This SparkNote, in conjunction with the SparkNote on GDP and
CPI, provides a complete basic set of tools for measuring
the economy. An understanding of how these concepts function together to
measure the economy provides the opportunity to see the effects of economic
changes that might otherwise get lost in the noise.
