Fundamentals of Macroeconomics Essay

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Fundamentals of Macroeconomics
Part I
Gross domestic product (GDP) In 1991 GDP became official measure of the economic health of US. Prior to this US used the gross national product (GNP), which did not provide accurate measure of economy of the US because they counted the people who worked for US abroad. With GDP it became focused on analyzing the production, investments, imports, and exports of US economy and it also includes the measure of employment rate. GDP could either be positive or negative. Positive means profit and negative the loss. Both, private and public segments are reporting their GDP either quarterly or annually.
Real GDP Real GDP measures the inflation which means that it can record changes in the prices and provide more accurate reports. When real GDP shows changes in prices in one year it means that it would also affect the regular GDP in recording accurate amounts. Real GDP is used by economists and the government to compare the GDP from one year to other years in order to analyze the economic growth.
Nominal GDP Nominal GDP is calculated as subtracting the inflation factor from the GDP. Using current market prices nominal GDP measures the total value of products and services that were produced. Unlike Real GDP nominal GDP does not include inflation in the calculations resulting in higher estimates.
Unemployment Rate Unemployment rate measures people who are currently unemployed as well as the people who are capable of working and actively seeking work. Senior citizens, people with disabilities, and people under 16 years of age are not included when measuring unemployment rate. However, unemployment rate does not include underemployed people or the people who are discouraged and have stopped searching for work. For this reason, unemployment rate does not provide the accurate information of unemployed population. Unemployment rate plays major factor on supply and demand because if people do not work and they do not earn income they are unable to spend which affects the economic growth.
Inflation Rate Meaning of inflation rate is when the goods or service prices are increasing but the buying of foresaid is decreasing. Inflation is considered to have occurred when the prices continuously rise. If this occurs government and the economists become concerned because the distribution of income becomes unjust and unfair.
Interest Rate Interest rate is usually imposed by lenders on the monetary loans or purchase of equipment or property. However, interest rate is also imposed on public in many states across the US when purchasing goods from stores. When banks start increasing and charging higher interest rates it affects the country’s economy because fewer people are borrowing or purchasing and more people are prone to save instead of spend. When the interest rate is on a rise it also impacts businesses. When business is discouraged from expansion due to the high interest rates it slows economy. However, lower interest rates have the opposite effect on the economy and the way people and businesses think and behave. Lower interest rates help the economic growth.
Part II
Purchasing of Groceries
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