Fundamentals of Macroeconomics Essay
This paper will consist of two separate parts, the first part will be defining six terms which are; * Gross domestic product (GDP) * Real GDP * Nominal GDP * Unemployment rate * Inflation rate * Interest rate
The second part will consist of three different economic activities in which I will describe how each affects the government, households, and businesses. The three activities include; purchasing of groceries, massive layoff of employees, and decrease in taxes.
The first term is Gross domestic product (GDP). The GDP has been used as an indicator as to how well an economy is growing and the overall well-being of the economy at hand. The GDP can be used as evidence for …show more content…
Inflation rate is the rate at which the level of prices for goods and services rises. Inflation causes the value of the dollar to decrease meaning that people have less purchasing power. Banks try to keep inflation to a minimum so the prices of goods and services do not grow too rapidly. The inflation rate is usually calculated on a monthly or annual basis.
Interest rate is a percentage of an amount that is borrowed from a lender. Interest rates are usually charged annually which is also known as the annual percentage rate (APR) in which the borrower is responsible for in addition to the amount borrowed. If the borrower is low risk, meaning that there is a good chance that the loan will be paid back then the interest rate is low. If the borrower is considered to be high risk, then the interest rate will be high.
The purchasing of groceries has an effect the government in a couple different ways. When consumers purchase groceries for their household it effects the way businesses operate because spending controls supply and demand. When the economy is in good health and the consumer’s purchasing power is high, then the business has a greater chance of profiting. Businesses can