Examples Of Macroeconomic Variables

2864 Words12 Pages
1.Definition of the macroeconomic variable
a) Economic Growth
A rise in the capacity of an economy to produce goods and services, compared from one period of time to another. Economic growth can be considered in nominal terms, which contain inflation, or in real terms, which are adjusted for inflation. The increase of an economy is thought of not only as an increase in productive capacity but also as a development in the quality of life to the people of that economy.Increase in the capital stock, advances in technology, and improvement in the quality and level of literacy are considered to be the principalcauses of economic growth. Two main factors of Economic growth are an increase in aggregate demand and aggregate supply.
b) Inflation
…show more content…
Inflation is a rate at which general price level increases for goods and services produced in a nation. When inflation exists, the purchasing power of a nations currency declines over time. Inflation not only reduces the level of business investment, but also the efficiency with which productive factors are put to use. The benefits of lowering inflation are great, according to the author Dornbusch, but also dependents on the rate of…show more content…
Inflation causes growth but not vice versa. This article also elaborated on the School of Thoughts, Structuralism View (inflation is a fundamental element of Economic Growth) and Monetarist View (inflation has an ability to determine economic progress). Monetarist View inflation has a positive effect on capital formation and capital information has positive relationship on economic growth. There is a negative relationship between countries like India, Pakistan, Bangladesh, and Sri Lanka. However the negative association between inflation and economic growth has been pointed out in some other countries. It also depends on the economic environment. Inflation can also be helpful in promoting economic growth. Pakistan faces internal and external threats which lead to macroeconomic problems. Inflation is also an ill for the growth of an economy. While looking at the relationship, the writers had to be also looking into other variables such as investment and capital formation of the economy. Throughout the study, the movement of inflation and economic growth, fact concrete conclusion is inverse relationship can be easily inferred. During the 1970s (in this period) inflation and economic growth had positive relationship, after this period the rates started to be high later the studies conclude it to be a negative relationship. Similarly,

More about Examples Of Macroeconomic Variables

Open Document