Notes On Fundamentals Of Macroeconomics

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Fundamentals of Macroeconomics
Rudy Burns
February 25, 2013
Laurence Hagan

Fundamentals of Macroeconomics
Part I * GROSS DOMESTIC PRODUCT (GDP) - The total value of the goods and services produced by the people of a nation during a year, excluding the value of income earned in foreign countries ("Gross Domestic Product," 2013). * The GDP is the total cost of finished goods and services produced. That means products that are manufactured as components to a finished are not counted into this count. * REAL GDP - The market value of final goods and services produced in an economy, stated in the prices of a given year (Colander, 2010). * See Nominal GDP, my own meaning is combined with nominal GDP. * NOMINAL GDP - The determination of gross domestic product without taking into account other factors or variables such as inflation ("Nominal GDP," 2013). * Nominal GDP and Real GDP are both terms used to describe the Gross Domestic Product before and after inflation is calculated into the value. They both have many other terms that economist use to describe them. Real GDP is used to describe GDP after inflation has been calculated into the value. Constant Price is one of many terms used. Nominal GDP is the GDP before inflation is calculated into the value. * UNEMPLOYMENT RATE - The percentage of people in the economy who are willing and able to work but who are not working (Colander, 2010). * Unemployment refers to people who have are between a certain age, able, and willing to work at but cannot find employment. Unemployment is measured at a point of time and the level of unemployment changes over time. * INFLATION RATE - The increase in price for a basket of goods and services expressed on a monthly or yearly basis ("Inflation Rate," 2013). * Inflation is defined as the persistent or sustained rise in general price level. It is the change in the average prices in an economy over a given period of time. The price level is measured in the form of index. For example, if the price index is 100 today and 110 in the next year, then the rate of inflation would be 10%. * INTEREST RATE - The price paid for the use of a financial asset (Colander, 2010). * Interest rate is the percentage that financial institutes determine to charge the borrower for the unpaid balance the borrower still owes. Interest rates can also drive economic growth. For example, if the interest rate is low borrows will borrow higher amounts for business growth.
PART II * PURCHASING OF GROCERIES * Purchasing groceries is an activity that involves purchase and sale at a price level. It creates demand for the groceries at a price which covers the cost of production including wages. If we take a two sector model of economy, it has the Household and the business. The household owns the wealth of nation including land, labor, capital used in the production of goods and services, while the business or the firms produce goods and services by hiring the factors owned by the households. The households receive payments for hiring their factors, which they