If we notice the economy of a nation as an abridged context it will appear that the output degrees of all the commodities and services in the economy have a propensity to move together. For instance, if the outcome of food item is experiencing a development, it is normally accompanied by a increase in the output degree of industrial commodities. Within the classification of industrial commodities also output of different kinds of commodities incline to increase or decrease concurrently. Similarly, cost prices of distinct commodities and services normally have a propensity to increase or decrease concurrently. It is also noticeable that the employment degree in different manufacturing units also increase or decrease simultaneously.
If average output degree, cost price degree or employment degree, in the different manufacturing units of an economy, reinforce close association to each other then the task of scrutinizing the entire economy becomes relatively easy. Instead of dealing with the variables that are mentioned above at disaggregated degrees, we can think of a single commodity as the degree of all the commodities and services manufactured within the economy. This characteristic commodity will have a degree of production which will commensurate to the average production degree of all the commodities and services. Similarly, the cost price or employment degree of this representative commodity will reflect the general cost price and employment degree of the economy.
In macroeconomics we normally clarify the survey of how the nation’s total manufacture and the degree of employment are associated to features (called ‘variables’) like :
- Cost prices
- Wage rates
- Rate of interest
- Profits etc., by concentrating on a single imaginary good and what happens to it.
We are able to manage this clarification and thus efficaciously forego from studying what happens to the many real goods that are actually purchased and sold in the market place because we generally see that what happens to the cost prices, wages interests and profits etc., for one good more or less also happens for the others. Especially, when these features begin changing fast, when prices are going up (in what is called an inflation), or employment and production degrees are decreasing (heading towards a depression), the common directions of the movements of these variables for all the individual goods are normally of the similar kind as are seen for the aggregates for the economy.
The above mentioned are a few concepts that are explained in detail about Introduction to Macroeconomics. To know more, stay tuned to BYJU’S.