Fundamentals of Macroeconomics
In this essay I will describe the fundamentals of GDP, unemployment rate, inflation rate, and interest rate. Also I will be explaining how some common occurrences such as buying groceries, massive layoffs, and a decrease in taxes affect the government, businesses, and even you.
Lets start with GDP. What is GDP you ask? GDP stands for Gross Domestic Product and represents the total market value, in dollars, of goods and services. There are 4 main components that affect GDP; consumption, investment, government spending, and net exports. Consumption is very straightforward and it just means the total number, in dollars, of goods and services purchased by households. On the opposite side what do you think government spending is? You got it, it’s the amount of money used by the government to buy goods and services as well. While the amount of money spent on additional production is labeled as investment. Net exports are the only component that is kind of tricky. To get the amount of spending for net exports you take the amount of goods and services that are produced in the United States and subtract the amount of goods and services purchased over seas and abroad. All of these components represent the flow of the economy,
Now that we understand what GDP is in a nutshell lets move on to another concept. All GDP does is measures final output. Final out put is goods and services measured in there final use. Any goods and services not in there final use are considered intermediate goods. So any intermediate goods (i.e. wheat sold to a wheat company or cotton to a sock company) are not calculated into total GDP. There are 2 different ways to represent final output, real GDP and nominal GDP. Nominal GPD is the amount in today’s dollars of GDP. Real GDP is the nominal GDP plus the amount of money it would take to account for inflation.
Unemployment rate, inflation rate, and interest rate are my next points of discussion....
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