Fundamental of Macroeconomics Paper

Fundamental of Macroeconomics Paper

May 6, 2013

ECO/372

Principles of Macroeconomics

David Euler

Fundamental of Macroeconomics Paper

Introduction

Part one of my paper will be to breakdown the definition of the 6 terms used to describe macroeconomics and part two will give three examples of some economic activities. Part one’s purpose will be to define six terms of macroeconomics which include: Gross domestic product, Real GDP, Nominal GDP, Unemployment rate, Inflation rate and Interest rate. While part two will discuss how each these economic activities has an affects the government, households an groceries: purchasing of groceries, massive layoff of employees and decrease in taxes.

Macroeconomic Terms: Gross Domestic Product

The Gross domestic product which is referred to as the GDP, is basically best defined as the main indicator used to calculate the state of a country’s economy. The GDP is the total market value of all products and services produced in an economy within the time period of one year (Colander, 2010).

The GDP is categorized into four expenditure categories: consumption, investment, government spending and net exports. One point that is important to keep in mind is that when the GDP is calculated it does not include intermediate goods (Colander, 2010).

The intermediate goods are eliminated from the GDP either by measuring only the final sale or by measuring only value added (Colander, 2010). Economists express that the GDP may be a poor means to measure and compare the living standards of people among different countries because it specifically measures market activities only.

Real Gross Domestic Product

Real GDP is formulated by dividing the Nominal GDP by the GDP inflator and multiplying it by 100. The solution reflects the real GDP and will show the actual amount of inflation. It could also be defined as the nation’s final number of goods and services that were outputted for a one year period and were adjusted for price...