Macroeconomics tracks the overall health of an economy using several key indicators. Gross Domestic Product measures the total market value of all final goods and services produced within a country's borders during a given period. Nominal GDP values output at current prices, while real GDP adjusts for inflation using base-year prices to reveal genuine changes in physical output. Economists calculate GDP through three equivalent approaches: the expenditure method sums consumption, investment, government spending, and net exports; the income method sums wages, profits, rents, and interest; and the production method sums the value added at each stage of production.
The unemployment rate is the percentage of the labor force without jobs but actively seeking work. Beneath this single number lie several distinct categories. Frictional unemployment arises as workers transition between jobs or enter the labor force for the first time. Structural unemployment reflects mismatches between worker skills and the skills demanded by employers, often driven by technological change. Cyclical unemployment rises and falls with the business cycle, increasing during recessions and falling during expansions. The natural rate of unemployment combines frictional and structural unemployment and corresponds to the economy operating at full employment.
Inflation, a sustained increase in the general price level, erodes purchasing power and shapes expectations throughout the economy. The Consumer Price Index measures the average change in prices paid by urban consumers for a representative basket of goods and services. Demand-pull inflation arises when aggregate demand outstrips supply, bidding up prices. Cost-push inflation arises when rising production costs, such as wages or oil prices, shift the aggregate supply curve leftward. The Phillips curve captures the empirical observation that, in the short run, lower unemployment tends to coincide with higher inflation, illustrating the trade-off policymakers often face when attempting to stimulate growth.