When talking about macroeconomics, there are a few terms that one must first understand. Those terms are gross domestic product, real gross domestic product, nominal gross domestic product, nominal gross domestic product, unemployment rate, inflation rate, and interest rate.
Gross domestic product (GDP) is what products and services produced in a one-year span of time are valued at. Real GDP is adjusted by the inflation rate, to create the market value of goods and services, in a one-year span of time. Nominal GDP is the value of products and services as compared to current prices. Unemployment rate is the number of individuals in an economy who are not presently working, but are willing and able to work. Inflation rate is the rate at which the price level of a product or service raises within a month or a one-year span of time. Interest rate is a percentage of the total amount of money being borrowed. These terms affect consumers in ways such as purchasing groceries, massive layoff of employees and decreases in taxes.
When purchasing groceries, consumers nowadays tend to compare prices between stores, as well as compare “name brands” versus “store brands”. The inflation rate affects the price at which goods are sold (real GDP), and consumers very often will choose the lesser priced product. Consumers are looking to get the most products while spending the least amount of money, as households consume a vast amount or products and most consumers do not have an adequate supply of resources to purchase the essentials.
Consumer spending helps business retain employees and create jobs, to help prevent massive layoff of employees. When consumers can be tempted to spend more money on groceries by using coupons or store specials such as 10 items for $10 where they are required to purchase 10 of the items to get the deals, stores and employees benefit. Promoting more deals brings in more customers, which is a win-win for the business and employees. When consumers spend money, the inflation rate goes down and real GDP goes down creating lower product prices for consumers.
When employees are laid off, there is less money being put into the economy which can lead to a higher rate of inflation. When inflation continues to increase, consumers are spending less money because they cannot buy as much as they could before. Less spending means that business will have to lay off employees, leading into a downward spiral of the economy.
If taxes are decreased by the government, consumers have more money to spend. Spending more money helps businesses earn more money, which means that can keep more employees or hire on more employees. An increasing number of working individuals leads to a lower rate of unemployment, and a higher rate of taxes being paid to the government. A lower unemployment rate means that the economy is