Fundamentals of Macroeconomics

In this paper what will be discussed is the fundamental terms of the definitions used in Macroeconomics. Understanding these definitions will better help to understand Macroeconomics, those definitions will be for; Gross Domestic product (GDP), real GDP, nominal GDP, unemployment rates, inflation rates, and interest rates. Also what will be covered are the following examples of economic activities which are purchasing of groceries, massive layoff of employees, decrease in taxes and how each of these activities affects government, households, and businesses.

Gross Domestic Product or GDP can be described as the total monetary value of goods produced coupled with services provided within a country for a specific period of time. The GDP is used as an indicator of the economic health of a particular country, and shows a country’s standards of living. This is measure in three different ways the first way is called an expenditure basis which measures, how much money was spent. The second being output basis which measures how many goods and services are sold. The third is income basis which measures how much profit was earned.

The Real GDP can be defined as the measurements that show inflation adjustment of the value of all goods and services produced in a specific period of time. This unlike nominal GDP can show changes in price level and give a more correct or accurate figure. Nominal GDP is a figure that has not been adjusted for inflation. It is evaluated at the current market prices. When trying to compare nominal GDP from one year to another it shows if the economy has grown or if it has shrunk in anyway in the form of dollar amounts, but does not show how the buying power of those dollars has been affected.

The unemployment rate is merely the number of the entire labor force that is unemployed, but is still actively seeking employment and that have a desire to work. An inflation rate is the rate at which prices for goods or services are rising. For example if inflation rises, every dollar will buy a smaller percent of a good or service. An interest rate is the amount charged for the use of money, or it could be defined as a percentage of principal by the person, corporation, bank, or government that lent money, to the