Perhaps the most important concept in macroeconomics is Gross Domestic Product (GDP): Gross Domestic Product (GDP) is defined as the market value of all finished goods and services produced in a country during a certain period of time.

The exchange rate is defined as the price of one unit of currency in terms of another currency. If one euro costs 1.5 USD then 1 USD costs 1/1.5 = 0.667 euro. If the exchange rate is stated in terms of the euro (for example, 1.5 USD/euro) then the euro is called the base currency or the unit currency.

Prices and price level

Price level

Prices are of great importance in macroeconomics as indeed they are in microeconomics. However, in microeconomics we are more interested in prices of individual goods and services and such prices are rarely important for the economy as a whole although there are exceptions (for example, the price of oil).

In macroeconomics we are more interested in how prices change on average . We define the price level as a weighted average of several different prices. If p 1 is the price of gasoline and p 2 the price of oil, then 10 p 1 + p 2 is a price level. It is a weighted average of two prices with weights 10 and 1. Normally, the price level is defined using many more prices.

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