Principles of Macroeconomics-ECO/372
November 19, 2012
University of Phoenix
Fundamentals of Macroeconomics
Macroeconomics defined as “the study of the economy as a whole, which includes inflation, unemployment, business cycles, and growth” (Colander, G-5). There are many fundamentals that affect the economy in both a good and bad way. These fundamentals affect the economy, and they also show the growth of the economy. The fundamentals are gross domestic product (GDP), real gross domestic product, nominal gross domestic product, unemployment rate, inflation rate, and interest rate. Defining the fundamentals
Gross Domestic Product is “the total market value of all final goods and services produced in an economy in a one-year period” (Colander, G-3). GDP calculation is very important because it calculates the growth, decline, or stand still have the economy. When the GDP is calculate, it is base on previous numbers not future numbers. For example, the GDP is +2%, which means a growth of 2% for the previous year. Real Gross Domestic Product (GDP) is “the market value of final goods and services produced in an economy, stated in the prices of the giver year” (Colander, G-7). Real GDP is an inflation measure of the production of goods and services in the economy. It reflects price changes throughout the year. The real GDP is base more on realistic numbers instead of a guess. The calculation is more accurate concerning the gross domestic product for the previous year. Nominal gross domestic product is calculate at existing prices. Nominal GDP does not reflect inflation and is known as “current dollar GDP.” Nominal GDP can either be higher or lower than the GDP. When nominal GDP is calculate without reflecting inflation, which can show a higher growth in the economy when it is lower or at a standstill. Unemployment rate is “the percentage of people in the economy who are...