Fundamentals of Macroeconomics
Principles of Macroeconomics ECO/372
January 24, 2014
There are a few terms that should be defined before exploring macroeconomics. • Gross domestic product (GDP) - refers to the total market value of the goods and services that are produced in a country in a year. • Real GDP- refers to the value of the goods and services that are produced in a country in a year, after being adjusted for inflation. • Nominal GDP- refers to the value of the goods and services that are produced in a country in a year, before the adjustments of inflation. • Unemployment rate - refers to the number of people in a country who do not have a job but are able to work. • Inflation rate - refers to how fast the prices of goods and services in a country are rising. The higher the rate is, the less the public’s purchasing power is. • Interest rate - refers to how an additional fee that is charged by a lender when money is borrowed. The higher the rate is, the more money will be charged to the borrower. Introduction
Now that some of the fundamental terms of macroeconomics are defined, it is time to explore some of the economic activities of macroeconomics. “Macroeconomics is the study of an economy at the aggregate level, and is concerned with the workings of large sectors of the economy” (Colander, D., 2010). Fundamental activities of macroeconomics in relation to sectors of the economy include the purchasing of groceries, massive layoffs of employees, and decreases in taxes. These activities affect the government, households, and business as the resources flow throughout the economy and from one entity to the next. Purchasing of groceries
Starting with the purchasing of groceries, it is important to understand that supply and demand play a huge role in the process. “Supply and demand interact with each other by fluctuating up and down, and this is what determines...
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