Fundamentals of Macroeconomics
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In today’s economy there are economists who measure growth and efficiency by the changes in the GDP, or Gross Domestic Product. The GDP is known as an economic indicator to measure he total output, which includes everything that the country is producing by its people and the companies in the country. The GDP can be measured by two means, the nominal GDP and the real GDP. The nominal GDP is the measurement, which uses the existing prices to measure the raw amount. The real GDP is the measurement based on inflation. The unemployment rate is the rate of unemployed people looking for employment compared to the total workforce in the country. The unemployment rate is something that the government and others watch closely because a high rate of unemployment can be a sign that the economy is weakening. On the other hand if the unemployment rate goes down that can be a sign of the economy starting to strengthen. The inflation rate is a rise in the price of goods and services within the economy. The inflation rate can cause either positive or negative effects on a country’s economy because when the prices go up the negative effects could increase a shortage in goods based on fear that the prices will get higher in the future. A positive effect would be for the banks so that they can adjust the real interest rate and possibly encourage investments. The interest rate is the price that can be charged for using a financial asset. The interest rate is considered a key variable in the financial sector (Colander, 2010). There are many types of interest rates in the economy but the text talks about two the short term interest rates and the long-term interest rates. Short-term interest rates are considered as interest rates in which the financial assets are repaid back in a short amount of time, whereas long-term interest rates are considered interest rates which are repaid over a longer period. In the economy there are several activities that can cause different effects on the economy by affecting the government, households, and businesses. Some of the activities are purchasing groceries, massive layoff of employees, and a decrease in taxes. When purchasing groceries the effect on a household is the amount of groceries can be purchased from the store. The effect on a business is that the store wants to get the households money to stay in business and out do their competition. Purchasing groceries can affect the government because of the taxes they impose on the price of the groceries, which in turn will also determine how much a household can buy. A massive layoff of employees can affect one’s household if there is a member who is affected by the layoff. The household money intake will be greatly altered and will restrict what the household can purchase. This can affect a business because they will be losing multiple employees at one time, which can cause the company to have a slower output of