Macroeconomics studies the behavior of the whole economy in general and allows us to understand why some countries prosper and grow while others fail to reach acceptable quality of life levels for their inhabitants. Why does this happen? GDP or CPI may be concepts that sound like Chinese, but they are really important.
John Maynard Keynes, in his book “General Theory of Occupation, Interest and Money” (1936) posed three questions : Why do production and employment sometimes decrease and how can unemployment be reduced? What are the causes of inflation and how can it be kept under control? How can a country increase its growth rate?
To answer these questions and offer their citizens optimal living standards, the governments of the different countries apply economic policies that revolve mainly around production, prices and employment . These are not the only economic aspects that should be monitored by the states, but the most important.
What are the GDP, CPI and the unemployment rate?
The question is, how are these variables monitored? There are three thermometers or indicators used to measure the health of a country : the Gross Domestic Product (GDP), the Consumer Price Index (CPI) and the activity, unemployment and occupation rates.
- GDP is the monetary value of all final goods and services produced by a country in a year. Measures the value of a country’s production.
- The CPI indicates how prices evolve and indicates whether or not there is inflation in an economy.
- The activity, unemployment and occupation rates indicate the employment level of a country.
The main objectives of all governments are to achieve high rates of GDP growth, contain the CPI at values close to 2% (according to the wishes of the European Central Bank) and achieve full employment, for which it is about reducing the unemployment rate to the minimum possible value.
The importance of economic indicators
The fact that there is economic growth in a country means that this is increasing the production of goods and services and, therefore, the profits of companies. This translates into employment, so families will have more money to consume, which will allow them to improve their quality of life and well-being.
On the other hand, if inflation is controlled, families will have it easier to reach the end of the month. Our retirees will also benefit because their pensions will not lose purchasing power. The companies, meanwhile, will not have to worry about the oscillations in the prices of the productive factors, especially the raw materials.
Finally, if high activity rates are achieved and the unemployment rate is reduced , the income of families will grow. By increasing the consumption of these, companies will also increase their sales and obtain greater benefits, which will contribute to more employment. On the other hand, having fewer unemployed governments will have to allocate less money to unemployment benefits and may allocate that money to other issues, such as education or health.
In short, when news reports that the GDP is growing, that inflation is controlled and that the unemployment rate is shrinking, and all this is happening now in Spain, good news for everyone: consumers, businesses and government.