Essay by akk713College, Undergraduate February 2004

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Six key variables

You can get a very good idea of the pulse of economic activity by looking at only six key economic variables: six variables that together give a very large chunk of the significant information about the macroeconomy. These six variables are:

Real Gross Domestic Product

The unemployment rate

The inflation rate

The interest rate

The level of the stock market

The exchange rate.

Real GDP

The first key quantity is the level of real Gross Domestic Product, called "real GDP" for short, and often referred to as just "GDP."

Let's unpack the definition of real GDP word-by-word.

Real GDP divided by the number of workers in the economy is our best readily-available index of the status of the economy: how well the economy is doing as a social mechanism for producing goods and services that people find useful: the necessities, conveniences, and luxuries of life.

U.S. Real GDP per Worker

Measured at 1995 prices, all economic forecasts are that U.S.

real GDP per worker--the total value of all final goods and services produced in the United States, divided by the number of workers in the labor force--will kiss $60,000 in the year 2000. This marks more than a quadrupling of real material standards of living since 1900, when real GDP per worker at 1995 prices was some $13,000 according to standard estimates.

Other features of macroeconomic history are visible on the graph below--the Great Depression of the 1930s, the World War II boom, the period of stagnation following the 1973 OPEC oil price increase punctuated by the 1974-75 and the 1980-82 recessions--but there is no doubt that the principal event of the twentieth century was the more-than-quadrupling of real GDP per worker.

Source: Angus Maddison (1995), Monitoring the World Economy (Paris: OECD), as extended.

The Unemployment...