Fundamentals of Economics

Topics: Inflation, Economics, Macroeconomics Pages: 3 (1173 words) Published: February 22, 2013
Part 1 – Economic Impact on the Macro Economy
Economics is an important part of the business world. There are different terms used in the business world that apply to everyday life in households. There are various factors that affect the economy such as gross domestic product, real GDP, nominal GDP, unemployment rate, inflation rate, and interest rates. These factors influence how people purchase groceries, whether businesses will conduct massive layoffs of employees, and a decrease in taxes. Gross domestic product (GDP) is the complete output of the product and services produced and developed in an economy within a year. GDP is typically used as a guide to the economic health of a country and to measure a country’s customary way of living. Changes in national income, price levels, unemployment, and rate of growth is the economic impact GDP has on the macro economy. GDP measures the total income of a nation that determines how the economy is performing. Real GDP measures adjusted inflation. Real GDP indicates the financial worth of goods and services made in a given year, shown in base year prices. It is gross domestic product in constant dollars. Economists can make helpful comparisons of a nation’s output and services using real GDP. An increase in real GDP increases incomes throughout the economy. When the real GDP is greater, the demand for money is likely to be greater. Nominal GDP is an amount that has not been modified for inflation. Adjustments in market prices that have occurred throughout the current year because of inflation or deflation is included in nominal GDP. Nominal GDP is important when applied to the national income. If the nominal value of output is rapidly increasing, the prices of goods will increase, from a statistical viewpoint, it looks as though the nominal GDP is rising fast. The reality is that living standards are dropping because inflation is greater than the increase in nominal GDP. Unemployment rate is the...
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