Macroeconomics

Macroeconomics is a sub-section of economics which focuses on the behavior of an entire economy, and the actors that exist at that level, such as the Federal Reserve. Looking through this lens, economists observe the financial decisions that manipulate an economy’s elements, such as interest rates, inflation, deflation, and stagflation. Macroeconomics can also explain phenomena that happen on a country-wide scale, such as different types of unemployment, and aggregate supply or demand. It can also be used to describe the current state of an economy, such as a country’s GDP. Economists use macroeconomics to discuss both historical trends and predictions for a certain economy.

Inflationary Gap

Otherwise known as an expansionary gap, an inflationary gap is the gap between an economy’s full-employment real GDP and its real GDP. In other words, the inflationary gap refers to the difference (that is, the gap) between the actual gross domestic product (GDP) and the GDP that would exist if the economy were at full employment (this is also known as the “potential GDP”).

Nominal Interest Rate

The nominal interest rate is the interest rate that has not yet had inflation accounted for in the overall number. This interest rate will be quoted on things like loans, bonds, and the like. It is the rate “as advertised,” which will not necessarily reflect the reality of how the interest rate will actually manifest as influenced by inflation, compounding interest, taxation, fees, and other such factors.

The Lorenz Curve

One of the five major and common macroeconomic goals of most governments is the equitable (fair) distribution of income, which is a crucial element of a functioning democratic society. With regard to this macroeconomic goal, the distribution of income or wealth in an economy is represented by a Lorenz curve.