Macroeconomic Fundamentals

Introduction

Understanding the fundamentals of macroeconomics provides a basis for which to understand the broader spectrum of the flow of economics and how it relates to the world we live in today. The knowledge of basic economic terminology can be beneficial when applied to both personal and business situations that are directly affected by the economy. While macroeconomics is the study of economics as a whole, knowledge and understanding of the way it works can assist individuals in making sound decisions for themselves and their families to reduce any potential negative effects of the economy. This paper will discuss a few basic terms and economic activities in relation to macroeconomics.

Macroeconomic Terminology

When studying economics, it is important to know that measurement is a key factor in understanding the way the economy is working. Gross domestic product is a form of measurement within economics. It measures goods and services that are produced in a country within a specific time period. Gross domestic product is calculated on an annual basis and is read in monetary value. Gross domestic product is important because it indicates a country’s economic health, which also provides insight as to the standard of living within that country. Simply put, gross domestic product is a measurement of a nation’s productivity.

Productivity facilitates growth, which in macroeconomics, can be measured by real gross domestic product and nominal gross domestic product. Both measurements are given in monetary value but each is figured on a basis of certain factors. Real gross domestic product does not factor in inflation, whereas, nominal gross domestic product does. Real gross domestic product is simply a measurement of the final production output of the nation. Since real gross domestic product is measured on a quarterly basis, it shows how the economy is growing by comparing each quarter in succession. Nominal gross domestic product is a measurement of the nation’s productivity that accounts for inflation and deflation. Since prices change year-to-year, nominal gross domestic product measures production at the current prices in comparison to real gross domestic product measuring production as if prices never changed.

Unemployment is important to understand because it adversely effects the economy. The unemployment rate is a measurement of the amount of people within a nation who are willing and able to work but cannot find employment. The unemployment rate correlates with the business cycle of macroeconomics and is affected by the nation’s current economic position.

In addition to unemployment, there are numerous other variables that can affect a nation’s economic health. Inflation is one of them. Inflation is