The results we get from macroeconomic tools are bound to make errors. These errors can sometimes be minimal or they can be drastic. Some of the tools used in macroeconomics are GDP (gross domestic product), Stock market, unemployment rate and money supply changes. These are the main and most commonly used tools when collecting results to predict economic realities. These tools can be challenged and be subject to error as a result of their flaws. There are many reasons how these tools can cause errors. To begin with, macroeconomic tools are bound to make errors because of the inaccuracy of GDP. GDP is short form for Gross Domestic Product and is said to be the best option when calculating a country’s economy because it includes the total value
…show more content…
Money supply has many weaknesses. For instance, it is not a big mover of the markets when looking at the short term of things. Also, there is not much breakdowns available or quarterly flow of funds reports. There are various types of money and money supply. They are generally classified as M0, M1, M2 and M3. According to the type and size. M0 and M1 are commonly known as “narrow money.” They include bills and change that can be quickly converted into cash. M2, is basically short term deposits and other money market funds. In addition, M3 in brief, is long-term deposits. Moreover, if money supply increases then the interest rate decreases. This will result in more investment and enables more money to be in the hands of consumers. Money supply affects the economy by making business purchase more raw materials which, will increase production. If money supply decreases then, it will result in an opposite …show more content…
The indicators eliminate multiple components in many of their tools that causes a huge ramification. Over the years people have come to believe that GDP is the proper way to calculate the country’s health, but overall is very ineffective. When GDP is calculated, it calculates all the spendings that the city does to upgrade and all the goods and services produced within a time period. Gdp does not include the damages a city receives due to a natural disaster. The millions and millions of dollar a city loses is not included in the GDP but the millions and millions of dollar that are spent on the repairs is. The information the GDP receives is very ineffective because this would make all countries seem as if they are doing very well and the country is in a healthy shape but in reality, the city is suffering. Another Macroeconomic indicator that fails to properly communicate the status of the economy is the unemployment rate. There is unemployment but there is many different types that people fall into. There is Frictional Unemployment and there is Structural Unemployment. These two are not included in the real unemployment rate, which makes a huge difference.These factors include people that are looking for a job but won’t qualify for the job because they do not have the proper qualification or experience. This happens to people that have come from foreign countries and either are
Money supply has many weaknesses. For instance, it is not a big mover of the markets when looking at the short term of things. Also, there is not much breakdowns available or quarterly flow of funds reports. There are various types of money and money supply. They are generally classified as M0, M1, M2 and M3. According to the type and size. M0 and M1 are commonly known as “narrow money.” They include bills and change that can be quickly converted into cash. M2, is basically short term deposits and other money market funds. In addition, M3 in brief, is long-term deposits. Moreover, if money supply increases then the interest rate decreases. This will result in more investment and enables more money to be in the hands of consumers. Money supply affects the economy by making business purchase more raw materials which, will increase production. If money supply decreases then, it will result in an opposite …show more content…
The indicators eliminate multiple components in many of their tools that causes a huge ramification. Over the years people have come to believe that GDP is the proper way to calculate the country’s health, but overall is very ineffective. When GDP is calculated, it calculates all the spendings that the city does to upgrade and all the goods and services produced within a time period. Gdp does not include the damages a city receives due to a natural disaster. The millions and millions of dollar a city loses is not included in the GDP but the millions and millions of dollar that are spent on the repairs is. The information the GDP receives is very ineffective because this would make all countries seem as if they are doing very well and the country is in a healthy shape but in reality, the city is suffering. Another Macroeconomic indicator that fails to properly communicate the status of the economy is the unemployment rate. There is unemployment but there is many different types that people fall into. There is Frictional Unemployment and there is Structural Unemployment. These two are not included in the real unemployment rate, which makes a huge difference.These factors include people that are looking for a job but won’t qualify for the job because they do not have the proper qualification or experience. This happens to people that have come from foreign countries and either are