is the study of large scale economic factors concerning the economy , financial markets and monetary policy. Economic factors are driven by behavior and behaviors are captured by the business cycle. ( macro changes happen in waves, with multiple forces moving at varying speeds, magnitudes, and timeframes.)The Business CycleMacroeconomists observe the business cycle to track and forecast economic conditions to help consumers, corporations, and governments make better business decisions. Five primary factors make up the business cycle.The Big 5
Growth
- Inflation
- Employment
- Policy
- Interest rates
The Big 5 are tracked on a cyclical basis through a plethora of data to reflect economic conditions. Leading and Lagging data reflect where conditions are coming from while leading data reflects where conditions are headed.
A nation's economy is driven by the total spending on goods and services measured by Gross Domestic Product (GDP). GDP is the easiest way to measure economic growth. One man's spending is another man's income. As incomes grow, employment grows. Strong employment means more people have more income, ultimately leading to more spending to support the economy. Strong employment also leads to higher production in the supply of goods and services to meet consumer demand. Increased productivity keeps prices from rising. If productivity is poor it leads to inflation.If the demand for goods and services rises faster than can be produced, government officials and central banks can adjust policies to discourage consumer spending (prevent inflation). Government officials & Central Banks can also use their policy tools to boost demand if economic growth is significantly weak. If policy tools fail to balance economic growth and inflation, the bond market will adjust borrowing rates to reflect where it thinks the economy and asset prices should be.The economic system relies on lending and borrowing to sustain economic growth, which means the fluctuations in interest rates are likely the most influential tool driving the economy and asset markets. The changes in interest rates, economic growth, inflation, employment, and policy can be tracked through Business Cycle.