Supply and Demand

Fundamentals of Macroeconomics
Helen Moise
ECO 372 Principles of Macroeconomics
Monday April. 15, 2013
Alexander Heil

Fundamentals of Macroeconomics Economics is the social investigation and recording of the way individuals, businesses and their government function together in an effort to sustain prosperity within an economy through its production, distribution and spending habits or how the community consumes money, materials, services, etc., within a community or country. The economy is divided into two separate parts: Microeconomics (the study of behaviors concerning decision-making or demands of consumers) and Macroeconomics (the study of behaviors concerning financial changes or trends within the community or country). The purpose of this paper is to try and provide some clarity to the fundamental principles of Macroeconomics. The following are economic agents which help to explain the operative activity of an economy courtesy of Investopedia.com, 2013:

1. Macroeconomics- focuses on the changes and trends of the economy, examining the rise and fall of economic demands, economic growth, government inclusion, the gross domestic product, inflation and interest rate. Macroeconomics examines the structure and performance of the economy. Economic theory states that we live in a world of scarcity; we do not have enough natural resources or time to fulfill our unlimited desires. Economics studies how we allocate our scarce resources (Richards, 1999-2013). 1. Gross Domestic Product- is similar to Macroeconomics; the gross domestic product also monitors the operative activities of an economy. GDP monitors consumer spending, government spending, business spending on capital and the nation’s total net export minus the total import makes up the economic gross domestic product. 2. Real Gross Domestic Product- is a measure that reflects the value of all goods and services at its initial price given and expressed in base-year prices. 3. Nominal Gross Domestic Product- unlike Real GDP, Nominal GDP cannot account for changes in the price level, and its results are not 100% accurate. 4. Unemployment rate- reflects the percentage of the total labor force that is not working but is willing and able to work. 5. Inflation rate- measures the general up and down fluctuation of prices for goods and services and when prices rise and purchasing levels decrease, inflation is present. 6. Interest rate- is the annual principal amount a borrower is charged on money that is received to them for goods and services, such as houses, cars, education tuition, etc. The amount of the interest rate is determined by the credit history of an individual. Like economics, Macroeconomics is one of two parts which make up the economy and the Macroeconomics of the economy is made up of three sectors that are very important to the positive operative activities of the country. These sectors are as follows: businesses, households and government inclusion. The activities of these sectors help to determine the country’s gross domestic product through its purchasing habits and its interconnections with other economies (according to its economical demands). The monitoring of these interactions is important because it helps to recognize the needs and demands of the economy to ensure government and personal spending continues to keep economic growth from decreasing or becoming stagnant. So how does purchasing of groceries, massive lay-off of employees and decrease in taxes affect the government, household and businesses within a community or country? For example, when consumers purchase groceries, the monies collected helps to increase the federal treasury. However, if the country experiences a massive lay-off of employees, the treasury’s financial level drops because consumers can no longer afford to purchase items or receive services from businesses. Low purchasing rates are not developed just from the unemployment rise, but also because interest rates will rise as well which will cause the price of products and services to rise, most likely making purchasing difficult for the working class as well for fear of future uncertainties. If the government have to raise taxes on businesses, product prices will increase and if businesses can not sell jobs will be lost. On the other hand, if interest decreased, disposable income increases, demand rates rise and gross domestic product grows positively because businesses will increase their production, then jobs will become plentiful and this will encourage consumers to start up spending money again.

References

Colander, D. C. (2010).Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin. Macroeconomics. (2013). Retrieved from http://www.investopedia.com Richards, R. e. c. (1999-2013). Basic Macroeconomics Principles. Retrieved from http://www.ehow.com/facts

References: Colander, D. C. (2010).Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin. Macroeconomics. (2013). Retrieved from http://www.investopedia.com Richards, R. e. c. (1999-2013). Basic Macroeconomics Principles. Retrieved from http://www.ehow.com/facts