Macroeconomic Analysis

Macroeconomic Analysis

Macroeconomics studies the behavior of the aggregate economy. Macroeconomics looks at economy wide phenomena like unemployment, national income, rate of growth, inflation, price levels and gross domestic product. To understand the economic society you live in it is imperative to have an at least a small understanding of macroeconomics. This essay will analyze three current articles/events within the macroeconomic study. There are many important economic issues that can be identified everyday. This paper will focus on the European recession recovery progress, inflation, and an international automobile trade pact.

The first article appeared in the Wall Street Journal on Wednesday October 14th, 2009. The article looks at the European recession recovery progress. The 16 country euro zone is experiencing the same economic weakness as the United States. In Germany economic expectations fell for the first time in four months. In the United Kingdom the pound is falling lower due to reports their central banks will keep interest rates low. For the first time in three months Spanish home-sales transactions fell in August after three months of increases. There are great concerns the stabilization of the gross domestic product is short lived and is being sustained by short term government stimulus. This article shows the similarities between the European regions struggles with recession and the United States struggle.

Just like Europe, the United States has great concerns about the sustainability of the reported economic recovery. The most import indicators to watch are leading economic indicators. Leading economic indicators are indicators which change before the economy changes. Leading economic indicators are the most important type for investors as they help predict what the economy will be like in the future. The stock market is one of these types of indicators. If the stock markets begin to increase in a sustained fashion, this would indicate growth in the economy in the future.

Inflation is another economic indicator. The second article was retrieved from the Wall Street Journal on October 14, 2009. The title of the article is Fed Vice Chairman Sees Tamed Inflation Threat. The article discusses an announcement by Federal Vice Chairman Donald Kohn that we should not expect a quick economic recovery. Many people would like to see the Federal Reserve begin raising interest rates from the near zero level we are seeing now. However, our inflation rate is extremely low and is not expected to rise for some time.

Inflation is the power your dollar has to purchase items. When prices increase your dollar will buy less. Unfortunately, prices will tend to always increase in the long run. Normally inflation and interest rates go hand in hand. You want to invest your money in a vehicle that has an interest rate that matches or exceeds the inflation rate.