Macroeconomic Essential Terms

September 16, 2023

Certain aspects of macroeconomics are mentioned all the time on the news or in news articles which people hear or read but perhaps don’t fully understand what they mean or their significance. Some of these terms include GDP, interest rates/the federal funds rate, income, investment, savings and inflation. To gain a better understanding of the these economic drivers, they will be defined in short general terms that are easy to understand and therefore relatable to the macro environment.

GDP

GDP stands for Gross Domestic Product. In short it is the sum of all the goods and services produced by a nation in one year and therefore the size of a country’s economy. One approach to calculating GNP includes spending (government spending, investment spending by the federal government, investment and consumer spending) plus net exports. Increases in GDP each quarter are indicators of a growing economy while two consecutive quarter of shrinking GDP indicate that the nation is in a recession.

Interest Rate / Federal Funds Rate

When most people think of interest rates, they think of the amount a bank will charge for a loan or pay a consumer in a bank account and this would be correct. This is known as the “nominal” interest rate. What we also need to know however is the “real” interest…