Macroeconomics regards the general economic factors of a country or state based on common bearing factors such as interest rates, taxation and levels of productivity. Even the freest economies in the world require some form of control, provided both by the public and the private sector. It is the obligation of the economist to understand the economy today and also foretell future economic implications. This information is used by government to control the economy and also by the private sector to make investment decisions. Both the government and private sector utilize the two major tools of planning and market to control the economy and also spur growth (Duffy, 2016). Long term economic success is achieved through a careful balancing act between letting the market determine trends as well as actually controlling market trends using well established plans and tools.
Economists as Both Scientists and Policy-makers
Scientists are involved in the study of the world based on facts verifiable through data. The study of science involves the development of a hypothesis which is later confirmed or disputed through data derived from experiments and/or observation (Coppock & Mateer, 2015). On the other hand, policy makers are mostly politicians and generate new rules and/or laws. Economists both predict future outcomes and also observe and study current trends. The hypotheses made by economists are used by governments to create the laws and rules that direct national economies (Coppock & Mateer, 2015). Having actual control and discretion on the creation of rules and laws make economists act as policy makers. These hypothesis are both arrived at and confirmed using actual data which is collected and analyzed thus making economists into scientists too.
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The Flow of Money and Goods in an Economy
The circular flow model is based on two main centers to wit home and/or individuals on the one hand and the firm and/or businesses on the other. The home/individuals provide labor and raw materials to the firms/businesses who then provide wages and payment to the homes/individual (Coppock & Mateer, 2015). The provided goods and labor are processed into finished goods and services which are then bought by the homes/individuals thus paying money back to the firms. This creates the two main circles with the home and the firm acting as nodes and resources moving contemporaneously between them hence the name circular flow model (Coppock & Mateer, 2015).
Coordination of Economic Actors
Economic actors are the individuals, firms, and organizations that make contributions to an economy from the various levels (Coppock & Mateer, 2015). The various levels are controlled through both economic planning and markets in different proportions. (Coppock & Mateer, 2015). Planning entails the control of economic actors through systems, rules, schedules, laws and regulations. Control by market entails when market players are controlled by the dynamics of commercial dealings. Normally, economic players are coordinated through a careful balance between planning and the market (Coppock & Mateer, 2015). Communist economies tilt more towards coordination through planning while capitalist economies tilt more towards letting markets coordinate the economic actors.
The concept of gross domestic product (GDP)
The GDP is a means of calculating the overall production of good and services per unit time, mostly a year or quarter, of any given nation in a pecuniary figure (Coppock & Mateer, 2015). Mostly, global GDPs are presented in the form of US dollars per year. The modern GDP concept was developed by Simon Kuznets in 1934 but based on already existing concepts. It was then adopted as the global means of determining the value of national economies in 1944 which say GDP succeed Gross National Product (GNP). GDP can be estimated as the dollar value of all the goods and services produced by a country per annum, the total purchases of goods and services in a country or the total income generated in a country (Bhandari & Frankel, 2015). The total amount of goods and services produced by a nation is the nominal GDP. Per Capita GDP on the other hand is the estimated GDP per individual citizen of a country.
The concept of consumer price index (CPI) and its imperfections
The consumer price index (CPI) is an economic tool used to estimate how much an urban individual spends in goods and services per unit time (Coppock & Mateer, 2015). CPI is calculated by combining price data with weight data. Price data is the average price of a given number of basic goods and services consumed within the city. Weight data is the propensity for use of different goods and services. Weight data is used to come up with a common basket of goods and services for a city. The combination of price data and weight data derives the CPI (Bhandari & Frankel, 2015). The main premises for CPI unreliability is the concept of weight data (Bhandari & Frankel, 2015). Weight data is arrived at through studies done on random households or estimates made suing National Income and Products Accounts. The system of estimation used is generally the commonsense way that does not even allow for calculation of confidence intervals (Coppock & Mateer, 2015). This results in one aspect of the data collected being imperfect and the rate of error or imperfection being undetermined. It is on this premise that the validity and reliability of CPI is often questioned.
Conclusion
The totality of the foregoing shows an extensive system whose basic elements seem independent from a casual look but are clearly well orchestrated and superintended. Most of the private sector players in an economic system may not even meet but their contributions affect the market generally and therefore influence each other. The government comes in with powerful economic instruments such as interest rates and taxation to maintain a level playing field and also avoid extreme changes in the economy. The economist plays an important role in all these processes. As a scientist, the economist will carefully collect and evaluate data to come up with a hypothesis. This hypothesis will guide policy and investments. Later, the hypothesis will be proven and disproven through further scientific research. All nations, professional affiliations and economic actors rely on the economists for long term economic success.
References
Bhandari, P., & Frankel, J. A. (2015). Nominal GDP Targeting for Developing Countries (No. w20898). National Bureau of Economic Research.
Coppock, L., & Mateer, D. (2015). Principles of Macroeconomics . New York, NY, United States: W. W. Norton & Company.
Duffy, J. (2016). Macroeconomics: A Survey of Laboratory Research. In J. H., Kagel & A. E. Roth, The handbook of experimental economics, Vol. 2. Princeton University Press.
