Fundamentals of Macroeconomics
ECON/372 Principles of Macroeconomics

To understand the business cycle, one must understand that there are several intricate pieces to the puzzle to allow it to be whole and show the whole picture. If even one piece is missing the picture is not complete, and the cycle can come to a halt. First one has to understand the GDP, Gross Domestic Product. The GDP is price of all goods and services a country can produce at any given time. This is equal to the government spending, investments, and consumer spending minus the cost for importing. The GDP is part of the economic puzzle, without it the picture is not complete. The real GDP takes inflation and summing the total of certain time frame. It is the value reached after summing the productive activity with other countries. This comparison allows the purchasing powers to be known so we can see who is buying what and where. It is not a matter of if the product is selling, it is a matter of is the company making a profit. There are a number of things that one should consider when making a product. How much does it cost to make? How much does it cost to import? These are very important factors in the process. The nominal GDP does not include inflation that as a result make the GDP seem higher that it actuallty is. This can be very perplexing from a financial aspect because one can look at a company’s sales from one year to the next, and they may appear higher, but once inlfation comes into play they are not as good as they seem. This is why it is important when investing to research everything. The unemployment rate is the labor force divided by the number of unemployed workers willing and able to work, but cannot find employment. The unemployment rate is not calculated the same across the board by different countries because based on the situation in that region. The inflation trate is a term used to descrive the rise in economics. This would be the rise in the price of goods and services from one period to another or one region to another. There are three types of inflation:
1. Money Inflation – when the federal government prints money which not backed by gold or silver
2. Price Inflation – done by increasing supply and reducing demand
3. Real Inflation – price levels if all other levels are considered
Inflation occurs when there is too much money floating around the economy. The government compares the inflation rates from one year to the next. One of the most important keys in the financial arena is the interst rate. This information is used to determine how lenders charges someone to borrow money. Interest rates are much like rollercoasters, they go up and down. Based on inflation, determines how high, or low interest rates will be. When the economy is in a good position the interest rates are will be high; however, when the economy is doing bad, the rates will be lower. At the end of the day, it is the consumer who determines the state of the economy. If no one is buying anything the economy will not do good because there is no money going into the economy. Paying close attention to the GDP, unemployment, and interest rates and inflation is important. It