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4: Economic Activity and Performance

  • Page ID
    45487
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    Macroeconomics is focused on three key indicators of the economy's performance and the underlying explanations for their behaviour. The indicators are:

    1. The rate of growth of real national income.
    2. The rate of inflation.
    3. The rate of unemployment.

    Other aspects of the economy like interest rates, foreign exchange rates, wage rates, government budgets, capital investment, commodity prices, housing and so forth are important to macroeconomic analysis because they work to determine performance as measured by these three indicators.

    Macroeconomics involves complex linkage and feedback effects that tie economic conditions and economic policy to economic performance. Macroeconomic theories and models attempt to capture this complexity. They seek to understand and explain the causes of changes in economic performance and the role for economic policy.

    Internationally the persistent effects of what seemed to be a local crisis in the US housing market triggered the Great Recession of 2009. International linkages among financial markets spread the effects across European and other financial markets. Government bailouts of major banks and monetary and fiscal stimulus to fight falling output and employment resulted in unprecedented government deficits and historically low interest rates. International financial and fiscal linkages were much stronger than expected initially.

    In Canada, the interest rates set by the Bank of Canada were reduced to the lowest historical level. Governments continue to focus their budget policies on reducing or eliminating budget deficits caused by earlier economic conditions and policy decisions, despite pressing needs for infrastructure investment. The recent collapse in crude oil and other commodity prices raise new concerns for domestic economic growth and employment.

    By mid-2016 energy and commodity prices had recovered and the new government's expansionary fiscal policy supported a mild economic recovery. Growth in Canadian economic activity and employment increased but, by Bank of Canada estimates, the economy still remained below 'full employment' in the first quarter of 2017.

    Macroeconomic theory and models emerged from an earlier major financial collapse and crisis followed by the depression years of the 1930s. Although today's economies are larger and more complex they still behave by the same basic principles.

    To understand the different dimensions of economic activity, economic conditions and macroeconomic policies, we need a framework that captures how they are related and how they interact. Macroeconomics provides that framework, using consistent and comprehensive system of definitions for the measurement of economic activity provided by the national accounts.


    4: Economic Activity and Performance is shared under a CC BY-NC-SA license and was authored, remixed, and/or curated by Douglas Curtis and Ian Irvine (Lyryx) .

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