Fundamentals of Macroeconomics
Principles of Macroeconomics ECO372
July 22, 2013
University of Phoenix
The assignment this week consists of two parts. Part one requests terms described by using our own interpretations, while the second part is a discussion summarizing the affects of some economic activities on the government, households, and businesses.
Gross Domestic Product (GDP) is the single most used instrument in measuring economic activity. The GDP is the total and final value of all goods and services produced in a market, measured over a one year span. GDP may also be referred to as the market value of final output. There are two types of GDP, real and nominal. Real GDP is referred to as the GDP that has been adjusted for inflation costs. Nominal GDP means the value was calculated at today’s existing prices. In order to calculate real GDP, you must have the nominal GDP and subtract the cost of inflation. It seems as that throughout Macroeconomics, nominal is always current or existing while real is adjusted for inflation. The unemployment rate is calculated as a percentage that is used to describe the amount of the population who want to and can work, but who do not have jobs. The inflation rate is the continual rise of the price level. It is important to note that inflation deals with the continual rise, it is not a one-time jump in prices. The overall increase in your year to year grocery bill is due to inflation, not the fact that Kool-Aid is 20 cents a packet this month when it was half that last month. Interest refers to the amount of money you must pay back in addition to your principle loan amount. Any interest rate is a certain amount calculated over a period of time. The interest rate macroeconomics deals with is the one that the federal government uses to control our economy. This key rate will determine whether or not a loan is affordable. In times of economic strife, this rate is lowered so borrowing will cost less and help boost the economy. In turn, when the economy is doing better, this rate is raised to reduce borrowing. Interestingly enough, a low unemployment rate will lead to a high inflation rate as well as a high interest rate.
Economic activities, such as purchasing groceries, massive layoffs, and tax decreases affect households, businesses, and the government in several ways. Food purchases, in the form of groceries, are probably one of the most important economic activities that Americans can do. First of all, groceries feed Americans. So, the price of food and the taxes associated with buying them, takes money away from Americans. The businesses that sell groceries make profit off of those groceries and are able to provide Americans with jobs (to buy the groceries.) The tax the business receives and holds for the consumer to be given to the government helps to fund the various government activities and programs that sustain America. As the price of groceries goes up, consumers are forced to buy less and therefore eat less, or eat less healthy. If taxes are raised, consumers are yet again forced to purchase less. Raising taxes or price levels hurt the businesses as well as the government because they ultimately make less.
Massive layoffs are scary for all three categories. When businesses are forced to lay off their workers, they plan on