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Fundamentals of Macroeconomics

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Fundamentals of Macroeconomics
Fundamentals of Macroeconomics

Fundamentals of Macroeconomics
Throughout this paper I will provide an explanation of the following terms: Gross domestic product (GDP), Real GDP, Nominal GDP, Unemployment rate, Inflation rate, and Interest rate. Within this paper I will consider purchasing of groceries, massive layoff of employees, and decrease in taxes as examples of economic activities. I will then describe how each of these activities affects government, households, and businesses as well as the flow of resources from one entity to another for each activity. With the information that will be given throughout this paper I will begin by providing an explanation of the previous mentioned terms.
Part 1
• Gross domestic product (GDP) is the total value of all final goods and services produced in an economy in a one-year period.
• Real GDP is nominal GDP adjusted for inflation.
• Nominal GDP is GDP calculated at existing prices.
• Unemployment rate is the total number of unemployed as a fraction of the labor force. It is the percentage of people who are willing and able to work but who are not working. It does not include the handicaps such as the blind, deaf, maimed, and children below 16 years.
• Inflation rate is a continual rise in the price level. Prices increase and decrease and the measure show the strength or power.
• Interest rate is amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets
Part 2
Consider the following examples of economic activities:

• Purchasing of groceries
• Massive layoff of employees
• Decrease in taxes

Describe how each of these activities affects government, households, and businesses. Describe the flow of resources from one entity to another for each activity.
The United States Economy can be divided into three groups business, households, and government and they are all interconnected. Businesses, households and government interact in a market economy (Colander,


References: Basu, C. (n.d.). eHow. Retrieved from http://www.ehow.com/info_8769498_do-tax-cuts-affect-gdp.html McIntyre, D. (2011). Daily Finance. Retrieved from http://www.dailyfinance.com/2011/06/15/layoffs-are-back-this-time-public-sector-will-bear-the-brunt/
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