Fundamentals of Macro

Fundamentals of Macroeconomics

Where microeconomics looks at the economical happening of a small group or individual within a society, macroeconomics looks at the overriding economy of that society as a whole. This macro economy can be viewed through the lens of statistical indicators which, when viewed together, can give an observer an idea of how that macro economy is performing. Some of these statistical indicators include: gross domestic product (GDP); real GDP; nominal GDP; unemployment rate; inflation rate; and interest rate. Herein, each of the aforementioned terms will be described along with some perspective of how each impacts the macro economy. Additionally, certain economic activities will be looked at in terms of how they affect government, households, and businesses. The economic activities that will be reviewed include grocery shopping, massive layoffs, and also tax decreases.

Economic Terms Defined

Gross domestic product is a statistical value that is widely considered the true measure of an economy. In essence, this number is an aggregate sum of the economic output of a given nation. This total output places a dollar value on all services and products that are produced by the people and businesses within a nation. So that GDP can be accurately compared from one year to the next, inflation needs to be removed as this will put the compared numbers on par with each other, instead of one year having a higher number merely because things stared to cost more resulting from that inflation. The idea behind this practice is that, if Nation A produces X in goods in services in one year and produces X in goods and services the following year as well, the following year does not have a higher GDP just because those goods and services happened to cost more in the second year. This GDP that has been adjusted for inflation is referred to as Real GDP. Nominal GDP is simply the raw number that has not yet been adjusted for inflation. As a result, the...