Fundamentals of Macroeconomics

Gross domestic product, or GDP, is a way of measuring how well a country’s economy is doing. GDP is the total income of a country which includes anything generated from goods and services by all of the individuals and companies in the country. Real GDP is the total income of a country generated in a given year with the effects of inflation taken out. Real GDP is the country’s total income adjusted for price fluctuations. Nominal GDP is the total income of the country before it has been adjusted for inflation and is a measurement of current price levels and values.

Unemployment rate is the total number of the labor workforce that is willing to work and is looking for work. This does not include seasonal workers who are off work and not looking for work. Inflation rate is the percentage amount that goods and services increase in a given time period and deflation is the percentage amount that goods and services decrease in a given time period. When the government puts more money into circulation, the price of goods and services may rise because of the large quantity of money which will now be circulating. Inflation can also be caused by supply and demand, increased wages, higher prices, and foreign exchange rates. An example would be to compare the value of the United States dollar to the value of a Euro. Euros are worth more than the dollar which makes it more expensive to do business in other countries. Interest rate is the percentage of money that is paid back to lenders by the people who are borrowing the money in the form of loans, mortgages, and credit lines. The interest rate is a percentage of the total amount of money borrowed. The interest rate affects the economy because when interest rates are higher less people borrow and spend money. When interest rates are low more people spend and borrow money.