The Macroeconomic Environment

This is a financial statement that represents the proposed revenues and spending of a government for a given financial year. It is the overall difference between the revenues of a government and its spending. While a negative balance becomes a deficit on the government budget, a positive balance becomes a surplus (Matsumoto and Kato, 2019).

Gross Domestic Product

This is the total value of provided services and produced goods within a specific time period in a country (Ali and Rehman, 2015). It is a broad measurement of the overall economic activity of a country. Businesses can use GDP to guide their businesses because it provides direct indication of an economy`s growth and health.

Inflation

This is a generalised increase of the prices of goods and services within an economy that is sustained (Hansen, 2016). This erodes the value of financial assets and money. It is worth noting that all increments in price do not amount to inflation. For instance, when during winter, the prices of produce go up, that does not amount to inflation and that is because the increase is not sustained.

Income and Employment Theory

This body of economic analysis is concerned with an economy`s relative employment, prices and output levels (Johnson, 2017). Governments try to come up that bring about the stability of economy`s through definition of the interrelationship between these macroeconomic factors. New thinking on this theory was developed by John Keynes following his publication of the General Theory of Employment. Building on the theory, Keynesians stressed the existing relationship between expenditure, output and income (Keynes, 2018). By their nature, there are two sides to transactions in that one person`s income is the expenditure of another person. The Y = O = D equation clearly expresses this, whereby, Y stands for national income, O stnds for the value of national outputs while D is the national expenditure. This equation points out that income, effective demand and output are all equal. And because consumers are at will to either save or spend their income, Y = C + S, whereby, S stands for savings, while C stands for consumption.

General government debt-to-GDP ratio

This is the total gross government debt of a country as a percentage of its Gross Domestic Product. The ratio is an indication of the health of the economy of a country and a key government finance stability factor (Blanchard and Zettelmeyer, 2017). Over time, the changes in government debt are a reflection of the impact of government deficits.

References

• Ali, A. and Rehman, H.U., 2015. Macroeconomic instability and its impact on gross domestic product: An empirical analysis of Pakistan. Pakistan Economic and Social Review.
• Blanchard, O.J. and Zettelmeyer, J., 2017. 17-27 Will Rising Interest Rates Lead to Fiscal Crises?.
• Hansen, B., 2016. A Study in the Theory of Inflation. Routledge.
• Johnson, H.G., 2017. Macroeconomics and monetary theory. Routledge.
• Keynes, J.M., 2018. The general theory of employment, interest, and money. Springer.
• Matsumoto, T. and Kato, J., 2019. Why Do Government Deficits Prevail? Prospect Theory of Government Budget Deficits. Prospect Theory of Government Budget Deficits (April 22, 2019).