The Fundamentals of Macroeconomics

Before being able to grasp what economics has to offer it is important to understand the terms and concepts that are frequently used in economic. This paper will consist of two parts, part one will explain six terms; gross domestic product (GDP), real GDP, nominal GDP, unemployment rate, inflation rate, and finally interest rate. Part two will consist of describing how three economic activities, such as purchasing of groceries, massive layoff of employees, and decrease in taxes. There will also be a few different examples that affect government, households, and businesses.

(Part one)

Start by describing the six economic terms.

Gross domestic product (GDP) is the most used economic measure when it comes to determining the value of goods and services that are produced in a given year (Colander, 2010). There are four categories to GDP’s consumption, government spending, investments, and net exports. The GDP reflects the total amount of both goods and services that were bought and sold, and there for can measure a country standard of living. It does not account for any goods or services that they may have in other countries.

Real gross domestic product (RDP) is the final value that is given to a product or service based on the current economy. This type of GDP adjusts with the price levels in order to produce a more accurate number. Nominal gross domestic product (NDP) is the gross domestic product without taking into account inflation and can be misleading because appear to be higher than it really is because it has not been adjusted for inflation. Unemployment rate is the amount of people that are not employed and are looking for work. This reflects only the people who are ability to work, willing to work, and are looking for employment.

Inflation rate is a level price of goods and services increasing. Inflation causes the value of the dollar to decrease meaning that people have less purchasing power. The increase in this rate is usually calculated annually,
but can also be requested monthly.

Interest rate is the percentage charged on loans and is charged annually. The higher the risk the borrower is the higher the interest rate this could be because of past experiences, late payments or not paying at all. If the borrower is low risk, then the interest rate will be low.

(Part two)

There are many activates that affect businesses, household, and government economies, here are three and examples of how purchasing of groceries, massive layoff of employees, and decrease in taxes. The purchasing of groceries by customers controls supply and demand. When the economy is good customers buy more there is greater chances of businesses making a profit, and when the economy is in a recession customer buying power is low. The recession and customers not buying groceries businesses will have to lay people off.

The purchasing of groceries also affects the government because the government receives sales tax on the purchase of these items. A massive layoff of employees will cause the unemployment rate to go up, and when people have been layoff they purchase less and collect unemployment. This affects businesses because demand of products and services are down, and they are not making as mush product as they once did. The household is effect with no money coming in they cannot pay their bills, or supply what the family needs to live. The government is affected because the people that were laid off are collecting unemployment from the government.

Decrease in taxes happens sometimes when the government has to intervene to slow down or try to reverse a recession. The government uses this policy to lower taxes to get people more money to spend so businesses can make products. When a business is producing products they are able to buy their workers and hopefully be able to hire more workers to help meet demand. With the decrease of taxes the government will have less money coming in for schools, to fix the streets, etc.

Economics is a constant cycle people have to work to make money to buy things that the household needs. Businesses need workers to produce products or services, which they are paid to do. The government relies on the taxes from workers, and businesses. Whenever money is spent there is going to be someone at a loss and someone at a gain, but it seems to always to come around full circle.