Q:

What are macroeconomic variables?

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Quick Answer

Macroeconomic variables, or MVs, are indicators of the overall state of a country's economy. In the United States, they include the Consumer Price Index, average prime rate, Dow Jones Average and inflation rate. The government studies MVs and attempts to keep them at certain levels in order for the economy to function.

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Full Answer

Macroeconomics looks at the economy from the widest perspective and studies general trends in order to assess the relative health of a given country's economy. Macroeconomics is important in governing a country, because it is the role of the central government to keep economy stable so that microeconomic activity can take place. Governments can control macroeconomics by issuing money and determining fiscal policies.

The U.S. Federal Reserve has been running Comprehensive Capital Analysis and Review (CCAR) every year since 2009. CCAR is a stress test for the U.S. banking system. The 19 largest American bank holding companies are tested to see if they can lend to the economy in case of an adverse macroeconomic scenario.

Among the macroeconomic variables that the Federal Reserve used to develop the stress scenario for the banks in 2011 were the Consumer Price Index, real GDP, real disposable personal income, 3-month Treasury bill rate, unemployment rate, National Price Index and Dow Jones Index. The next year, MVs such as mortgage rate and Market Volatility Index were added.

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