The Core of Macroeconomics
Y=C + I + G + (X-M)
Y=C + I + G + (X-M)
I hope that everyone is doing well this fine evening. We've seen a lot of volatility in the Market today, as well as a spike in the price of Gold. That's to be expected in times like these. As the status of the dollar becomes more uncertain and volatility increases, people are convinced that fleeing to the old trusty gold standard will save them from the windfall. That's all for the news, because today I would like to be more informative and focus upon a fundamental identity in macroeconomics. Perhaps it will help some of you understand what is going on in our economy!
Y = C + I + G + (X-M) in other words National Income = Consumption + Investment + Government spending + (Exports -Imports).
What does this mean?
Well, national income is basically the GDP of a country. What is the GDP you might ask? GDP is essentially the value, in dollars for we Americans, of all the final goods and services produced in our economy. Tractors, bikes, steaks etc. etc.
Consumption is, as it sounds, the amount of goods we as citizens have consumed. For example, how many steaks have we eaten.
Investment and this is key for economics. It's basically things you've purchased that you plan to gain income from. Such as houses, machinery for a business etc.
Government spending is the total amount the government has spent in a period. Be it debt spending or not!
(Exports-Imports) is also pretty self explanatory. It is the amount of stuff we've sent to other countries minus the amount we have purchased from other countries.
How is this relevant to today's economy?
Well, you might notice my rant about the Fed cutting the interest rate and allowing banks to keep money longer. This is because, as many of you know, we are currently experiencing a large government deficit and a large trade deficit. Both of these put pressure on our $ to devalue, because economies like to be in equilibrium. If the dollar weakens, it becomes cheaper for the US to export, shrinking our trade balance. Not only does it hurt people more than it has to, but it is also a matter of pride. The dollar should be a symbol of stability, in my opinion.
However, the act by the fed of putting more money into the system has made the decline in the dollar stronger than it should have been. This, coupled with stagnated wages in the face of inflation (also caused by the interest rate cuts) is sure punishment for the average person. If somebody asks you what the trouble is with our current economy, now you know!
Y = C + I + G + (X-M) in other words National Income = Consumption + Investment + Government spending + (Exports -Imports).
What does this mean?
Well, national income is basically the GDP of a country. What is the GDP you might ask? GDP is essentially the value, in dollars for we Americans, of all the final goods and services produced in our economy. Tractors, bikes, steaks etc. etc.
Consumption is, as it sounds, the amount of goods we as citizens have consumed. For example, how many steaks have we eaten.
Investment and this is key for economics. It's basically things you've purchased that you plan to gain income from. Such as houses, machinery for a business etc.
Government spending is the total amount the government has spent in a period. Be it debt spending or not!
(Exports-Imports) is also pretty self explanatory. It is the amount of stuff we've sent to other countries minus the amount we have purchased from other countries.
How is this relevant to today's economy?
Well, you might notice my rant about the Fed cutting the interest rate and allowing banks to keep money longer. This is because, as many of you know, we are currently experiencing a large government deficit and a large trade deficit. Both of these put pressure on our $ to devalue, because economies like to be in equilibrium. If the dollar weakens, it becomes cheaper for the US to export, shrinking our trade balance. Not only does it hurt people more than it has to, but it is also a matter of pride. The dollar should be a symbol of stability, in my opinion.
However, the act by the fed of putting more money into the system has made the decline in the dollar stronger than it should have been. This, coupled with stagnated wages in the face of inflation (also caused by the interest rate cuts) is sure punishment for the average person. If somebody asks you what the trouble is with our current economy, now you know!
No comments:
Post a Comment