Three of the most frequently used elements of macroeconomics are the production function, the output equation and the unemployment equation. All three are measures of the efficiency and size of a macroeconomy.
Continue ReadingThe production function relates output to labor and capital, the factors of production. The equation can be expressed as A = BC, where A is output, B is labor and C is capital. The function can be expressed visually in a graph with units of output (A) on one axis and either labor (B) or capital (C) on the other axis.
The rate of unemployment (U) is a decimal number between 0 and 1. Determine the value of U by dividing the number of unemployed by the total number of workers in the workforce, which is the sum of all employed and unemployed workers.
The national income or aggregated expenditure equation, frequently used to measure gross domestic product, is written as Y = C + I + G+ nX, where Y is output, C is consumption, I is investment, G is government expenditure and nX represents net exports. This equation is a central tenet of Keynesian macroeconomics; economists and government officials study it in depth, and it plays an important role in policy decisions.
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