Question

How would you "take the Pulse" of a nation, so to speak, to assess its health? In other words, what are some macroeconomic variables that you would assess to determine whether the economy is doing good or bad? Please include some real-world examples (referencing the United States or another country).

Answer 1

The unemployment rate is the percentage of the work force not currently employed. The percentage only takes into consideration the number of people actively looking for employment. Those who are unemployed and aren't looking for jobs are unemployed "voluntarily." Many governments are setting benchmarks for unemployment rates as they know a zero rate is near impossible. Where the actual aggregate unemployment rate is at or below the benchmark rate, it is considered that the economy is fully employed.

The inflation rate is often considered to be the Bad Guy macroeconomic, but it can actually be used to measure changes in the average price level based on a price index. In the United States the most commonly known index is the consumer price index (CPI). This index measures the average retail prices payable by consumers. A high or increasing CPI indicates the existence of inflation. Higher prices tend to lower total consumer spending, which in turn leads to a fall in GDP. While inflation itself isn't always negative, rapidly rising inflation rates indicate the potential for poor macroeconomic health.