Fundamentals of Macroeconomics - Part 2

Fundamentals of Macroeconomics ECO/372 Macroeconomics October 23, 2012 Fundamentals of Macroeconomics The purpose of this paper is to describe the following terms: gross domestic product (GDP), Real GDP, Nominal GDP, Unemployment rate, inflation rate, and interest rate. Then we have to describe how purchasing of groceries, massive layoff of employees, and decrease in taxes affects government, households, and businesses. Learning and understanding the terminology of economics and what really makes the economy work will give us a better insight on why things operate the way that they do.

Terms GDP-Gross domestic product (GDP) is the final sale of goods and services within a given time period. Real GDP is the output of goods and services, adjusted for price change. Nominal GDP is based on current market prices and include market prices changes due to inflation or deflation. Unemployment rate is a percentage calculated measure by dividing the number of unemployed and employed individuals. Interest rate is a rate paid by the borrower that the consumer has to pay to the lender. Economic Activities Affects

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Economics affects our lives at some point or another, and we do not realize how it has an important part in each household, government, and businesses. When consumers purchase groceries they are making a dual investment by supporting businesses in the economy and investing in their immediate households by providing the basic needs for their families (Colander, 2010). The business who supplies products becomes a benefactor by providing goods, services, and jobs to individuals in the community (Colander, 2010).

The government is ultimately affected when a community has stable resources from which individuals are fed and employed. When those resources become scarce the government experiences the effects over the long-run (Colander, 2010). Massive layoff of employees would have a tremendous affect on government, households, and businesses. The government would take a deeper hit when there are massive employees being laid off because it will affect the consumer price index and the gross domestic product (Colander, 2010). A assive lay off of employees would have an effect on government because less money would go into the treasury, which would raise interest rates, and decrease the U. S. market value (“Fiscal Policy and Economic Growth/government’s Unique Situation”, 2003). A decrease in taxes also decreases government revenue, but will promote consumers to spend more money (“Fiscal Policy and Economic Growth/government’s Unique Situation”, 2003). A tax decrease will increase disposable income and leave households with more money to spend.

Decreasing taxes will stimulate economy because consumers will spend more, which leads to more jobs and higher GDP growth (“Fiscal Policy and Economic Growth/government’s Unique Situation”, 2003). Conclusion The gross domestic product (GDP), Real GDP, nominal GDP, unemployment rate, inflation rate, and interest rate terms were described. Learning and understanding the terminology of economics and what really makes the economy work has given us a better insight on why things operate the way that they do.

Now there is a better understanding of how purchasing of groceries, massive layoff of employees, and decreasing taxes affects government, households, and businesses. References Colander, D. C. (2010). Fundamentals of Macroeconomics (8th ed. ). : McGraw-Hill/Irwin. Fiscal Policy and Economic Growth/Government’s Unique Situation. (2003). Retrieved from http://www. infoplease. com/cig/economics/government-unique-situation. html

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