Fundamentals Of Macroeconomics Essay

1266 words - 6 pages

Fundamental of Macroeconomics Paper

July 23, 2012

Dr. Lori Geddes, P.h.D

Introduction

This paper will be divided into two distinct parts the first part will consist of the 6 terms used to describe macroeconomics and second part will provide 3 examples of economic activities. The purpose of part 1 is to define six terms of macroeconomics which include: Gross domestic product, Real GDP, Nominal GDP, Unemployment rate, Inflation rate and Interest rate. Part 2 will discuss how the following economic activities: purchasing of groceries, massive layoff of employees and decrease in taxes affects the government, households and businesses.

The market value of goods and services will change frequently throughout the year and the real GDP is utilized to reflect the value of goods and services as it changes.

Nominal GDP

The nominal GDP is utilized to measure the dollar value which includes the amount of inflation for goods and services produced in one country over the duration of one year. Therefore nominal GDP reflects the total market value that a country makes for goods and services produced in one year. The nominal GDP reflects the actual amount of money that consumer’s spend on goods and services.

Unemployment Rate

The unemployment rate is expressed as a percentage and is calculated by dividing the number of unemployed people within one country by the labor force (Colander, 2010). The unemployment rate will increase when the economy is in a state of recession and it will decrease when the economy goes through an expansion.

Inflation Rate

The inflation rate is determined by the continual increase in the price level of goods and services (Colander, 2012). The price level can best be defined as an index of all prices of goods and services with in the economy. It is important to understand that a one time price level increase is not considered inflation. The government is hindered by inflation especially when price level of goods continues to increase because it prevents the economy from expanding and reducing the percentage of unemployment.

Interest Rate

Interest rate can be defined as the amount of interest a person has to payback over and above the original amount of money borrowed. Basically it is the loan amount plus the interest you have to pay for borrowing money from banks and any other lending service. Interest rate is usually referred to as the APR which stands for Annual Percentage Rate.

When the interest rates are high consumers tend to more conservative with their money and spending however when the interest rate is low consumers tend to spend more money. Low interest rates help the economy to expand and high interest rate could lend the economy into a recession.

Part 2: Economic Activities

Part 2 of this paper will discuss how the purchasing of groceries, massive layoff of employees and a decrease in taxes affects the government, households and businesses. Each of these economic activities impacts the economy because they determine how willing and able consumers are to spend money.

Purchasing of groceries is a necessity for all households – people have to eat to survive. The amount of money that consumers spend on groceries all depends on the state of the economy. When the economy is not doing well and the price of groceries increases consumer spending with decrease – consumers will purchase the food products that are...

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