Macroeconomy Case

Economic Impact on the Macro-Economy

GDP

The gross domestic product (GDP) is a measurement of the total value of the products and services produced within an economy. The GDP is considered to be the best gauge of economic output and growth available. This measurement serves as an accurate representation of the overall health of the current economy. Factors like foreign trades (imports and exports), Government spending, and personal consumption are detailed in the GDP report. The GDP is calculated quarterly, but most often presented as an annual report.

Real GDP

Real GDP is similar to GDP, though it takes inflation into account. Using prices and values from an earlier year, the values of the goods and services produced are adjusted for inflation; which offers a more accurate analysis. This makes it possible to compare the current economic position and trends against the past economic time periods.

Nominal GDP

The nominal GDP uses the current market prices of goods and services to measure the economic value of them. This leaves in the cost of inflation which results in a higher estimation than that of the real GDP. Nominal GDP is useful in determining the total value of goods and services produced for an economic time period, usually a year.

Unemployment Rate

The unemployment rate is the percentage of people within an economy who are not working, but are willing, capable, and trying to do so. The figures used to calculate the unemployment rate do not account for everyone who is in need of employment as many people are underemployed or unwilling to look for work, but the rate is a good representation of the demand for work and the lack of a workforce. Economically, the unemployment rate can demonstrate the potential for economic growth if these unemployed were to find work (Colander, p. 163, 2010).

Inflation Rate

The rate of inflation refers to the continual rising of costs for goods and services which is unequal to the rise in salaries and wages of the employed. As prices for goods go up, many businesses raise their prices, passing on the costs to their customers. This creates an unbalance where economic expansion is hindered and consumers are unable to purchase items and services at the rate that they would normally (Colander, p.171, 2010).

Interest Rate

Interest rates are percentages that are charged by financial lenders for the use of their money. When interest rates are high, less people can afford to borrow money for things like home loans and car loans. This slows down the economy by lowering the consumer demand for these items. High interest rates can cause consumers to save rather than spend their money, which can also hinder the economy. Low interest rates may help an economy to expand and grow, as consumers are more willing and able to borrow and purchase the things they want. Businesses are able to take advantage of low interest rates to expand, providing for more jobs and overall economic growth. When interest rates are low, companies are more willing to purchase