Fundamentals of Macroeconomics Paper
Economists use gross domestic product, unemployment rate, and interest rates as tools to determine economic trends and predict the future changes in the economy. They try to manipulate the frequency, duration, and extremes of those changes; a never-ending effort to minimize the roller coaster effect. Following is a list of loose definitions for those tools.
Gross Domestic Product (GDP)
The gross domestic product, or GDP, is the amount of the nation’s net exports during a given term say a month or a year, expressed in a dollar amount. Economists measure, record, chart, and analyze the trends and fluctuations in the GDP. They use the data to gauge which state of the business cycle the economy is in: contraction, trough, expansion, or peak. This information influences whether businesses will save or invest, hire or fire, and survive or die.
Real vs. Nominal GDP
The gross domestic product is expressed in two terms, real GDP or nominal GDP. The real GDP has been adjusted to account for inflation, and the nominal GDP has not been adjusted. Economists use the Real GDP to show practical relevance and to allow a comparison of apples to apples over time. Household consumption, firm investments, government spending, and net exports are often compared in terms of real GDP. The nominal GDP is a snapshot of a moment in the economy with no adjustments for inflation. Comparing a Nominal GDP snapshot from one moment to the next is like comparing apples to oranges because inflation plays a complex role in comparing monetary values and Nominal GDP does not account for that.
The unemployment rate is the number of people without work in any given jurisdiction. It’s expressed as a percentage. The United States unemployment rate is around 8.2%, whereas the state of Georgia is approximately 8.9% (Harris, ECO/372, June 13, 2012). Comparing the unemployment rate of a country to the...
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