Essay on Fundamentals of Macroeconomics

Submitted By Wcramer
Words: 808
Pages: 4

Fundamentals of Macroeconomics



Introduction The fundamentals of macroeconomics have many key terms that will help you gain a better understanding of the activities involved in economics. These activities affect government, households, and business that impact our economy and shape our society. The first term is gross domestic product (GDP), which is an indicator of a country’s standard of living. GDP is the market value of all goods and services produced in a country over a certain time frame. Real GDP is what is used in macroeconomics to measure the value of the economic output adjusted by inflation or deflation. Nominal GDP is where the effects of inflation have not been accounted for, which means that if inflation is positive then the interest rate is lower than the nominal rate would be. The next term is unemployment rate also known as joblessness. The unemployment rate is a measurement of the number of people who are without a job and that is calculated as a percentage by dividing the number of unemployed people by all the people who are currently in the labor force. During recessions the unemployment rate increases. Inflation rate is a term used in economics that measures the inflation or rate of increase of a price index. Inflation rate is a percentage of rate change in a price level over a period of time. The last term is interest rate, that is rate of interest paid by someone who borrowed money from a lender. For example a student takes out a student loan from a bank for a certain amount of money, according to whatever the banks interest rate is the student will be paying back more that what was borrowed for the bank loaning the money to the student. Economics affect our government, households, and business and these affects are caused by a number of different activities. Activities as simply or as common as going to the grocery store and purchasing groceries, to a massive layoff of employees from companies and business, to a decrease in taxes. The U.S. economy is broken up into three sectors, which are household, government, and business. Households supply labor and other factors of production to businesses and are paid by businesses for doing so.
The market where this interaction takes place is called a factor market. Businesses produce goods and services and sell them to households and government. The market where this interaction takes place is called the goods market (Colander, 2010). These three sectors are interconnected like the entire U.S. economy is interconnected with the world economy. The U.S economy is connected to the world economy and the connection between the two consist of interrelated flows of goods or exports and imports and money or capital flows. The government is connected to both households and business because it taxes both. The government buys labor services from households and services and goods from businesses, and then the government takes some of that money and provides services such as schools, education, roads, and construction