Macroeconomics

Fundamentals of Macroeconomics

Gross Domestic Product can be described as the monetary value placed on products and services within a countries limitation. According to www.investopidia.com, the Gross Domestic Product is calculated based on a formula of key factors in determining the GDP. The formula is

GDP = C + G + I + NX. The “C” representing consumer spending, in a nation's economy, “G” representing sum of government spending, “I” representing sum of all the country's businesses spending on capital  and the “NX” representing the nation's total net exports, calculated as total exports minus total imports. One example of an economic activities as purchasing of groceries the consumer often see prices rise due to the price of goods increasing. As a shopper, one may notice that the price of dairy products has had a significant increase in price lately. This type of scenario usually takes place when the cost of supply has increased which leads to the price to be driven up. However, on the down side of things if the demand of dairy products goes down the producers will have a massive layoff due to the cost of demand. The domino effect of situations like this leads to the lowering of taxes. Tax cuts boost the economy by putting more money into circulation. They also increase the deficit if they aren't offset by spending cuts. As a result, tax cuts improve the economy in the short-term, but depress the economy in the long-term if they lead to increased federal debt (www.about.com, 2013 Retrieved from: http://useconomy.about.com/od/usfederaltaxesandtax/g/Tax-Cuts.htm).

Real GDP has the same description as GDP except the regular monetary value as been inflated.  Real GDP is based on the expression of the current year giving consumers a more accurate value. As the real GDP has been adjusted for inflation, nominal GDP or Gross Domestic Products have not been inflated. An example of an economic activity as purchasing of groceries is the money consumers save by...