October 25, 2012
Instructor: Kirk Maringi
Fundamentals of Macroeconomics
Gross Domestic Product The Gross Domestic Product or GDP of a nation is said to be the combined total price of all the goods and services that are produces during a given period of time. The GDP is of great importance for economic analyst because it is used as an indicator to determine how well or bad the economy is doing. In essence, when people work to create a product or provide a service, they earn income or they get paid. The GDP is basically the total amount of what people or companies make by buying or selling goods and services during a year.
Real GDP Real GDP is the Gross Domestic Product that results after adjusting prices for inflation. During any given year, prices fluctuate up or down, therefore the GDP should be adjusted to reflect current market prices minus inflation ("Investopedia", 2012). The result is what we know as real GDP. Real GDP takes into consideration the price changes in the market and therefore is considered to be more accurate.
Nominal GDP The nominal gross domestic product is a GDP that has not been adjusted to account for inflation. It is also referred to as current dollar GDP ("Investopedia", 2012). The nominal GDP of a nation can be deceiving because it reflects a GDP of current prices but it doesn’t account for inflation. This could indicate an economic situation that is better than what it really is. For example, a nominal GDP increase of 9% with an inflation rate of 5% will result in a real GDP of only 4%.
Unemployment Rate The unemployment rate of a nation is considered the percentage of people that are physically able and willing to work, but are not successful in finding a job (Colander, Chapter 7, 2010). That percentage doesn’t account for children or those who are too sick to work, incarcerated, etc. It only refers to individuals of working age who are diligently looking for work but are still unemployed. Unemployment rate is usually a good indicator of how well an economy is doing. In an economy that is strong and in the process of growing, unemployment rates are going to be low. On the contrary, if the economy of a nation is doing poorly, unemployment rates are usually going to be higher.
Inflation Rate Inflation is defined as the “continual rise in the price level” (Colander, 2010, Chapter 7). The price level is also known as an index that economist use to measure all the prices throughout an economy. It is understandable that prices fluctuate throughout a year based on supply and demand, season, etc; that doesn’t always lead to inflation. Sudden one time spikes in prices do not necessarily mean a rise in inflation; it must be a constant rise without prices coming down to previous levels.
Interest Rate Interest rate is the amount that is charged or paid for the borrowing or lending or money, or any asset considered financial in nature. Some examples of interest rates include those charged by credit card companies, banks, department stores, etc. A company that requires you to pay back 15 cents for every dollar you borrow, in essence has an interest rate of 15 percent.
Flow Resources between Government/Households/Business When consumers purchase groceries it creates a cycle where resources are exchanged from one entity to the other. We began by the household or individual making the purchase, he or she must render some form or payment for the good being purchased; usually in the form of money. Money is given to the store making the sell. The increase in money allows that entity or business to pay for cost…