GDP is the value of goods and services which is released quarterly by the Federal Reserve. This includes the goods and services manufactured by that country that calculates the state of a country’s economy. This is the main indicator used to calculate the state of a country’s economy. The GDP is the total market value of all products and services produced in an economy within the time period of one year (Colander, 2010). The GDP is categorized into four expenditure categories: consumption, investment, government spending and net exports. A factor to keep in mind is that when the GDP is calculated it does not include intermediate goods (Colander, 2010). The intermediate goods are eliminated from the GDP either by measuring only the final sale or by measuring only value added (Colander, 2010). Economists believe that measuring the living standards with the GDP is a poor means to measure because it only measures market activities. Nominal GDP
A measurement of the total dollar value over the duration of one year that includes consumer spending, the value amount of inflation for products, and services manufactured in a country. Real GDP
Gross domestic product is the final measurement of goods and services that were produced for one year and were adjusted for price changes. The GDP calculations can determine the actual inflation figures. Unemployment rate
The unemployment rate is calculated by dividing the number of unemployed individuals within a country by the labor force (Colander, 2010). When the economy is in a state of recession, the unemployment rate will increase. These figures will indicate how the country is doing economically.
The inflation rate is determined by the continual increase in the price level of goods and services (Colander, 2012). It is a percentage increase of the price level of goods and services within the economy that affects the value of a nation’s currency. When the inflation rate goes up, the buying power for individuals will decline. Interest rate
When an individual needs a loan, an amount of interest is added to the loan amount that the borrower will have to pay to the lending company for borrowing the money. The lower the interest rates the more people will buy that help the economy expand; however, if interest rates are high, the economy will go into a recession. Purchasing of groceries is a necessity that every household needs to survive. When individuals purchase groceries at stores, this affects the economy. Consumer spending on groceries affects the supply and demand that helps the state of the economy. This is positive and beneficial for businesses because sales taxes are being paid that help the government, farmers and food manufactures are benefiting from the purchase because of the increase in demand keeping them in business. When people purchase groceries it benefits employees, the community, business, and government. During massive layoff of employees causes a negative impact on the economy and affects households, businesses, and the government.
Consumer spending declines because individuals have limited or no income coming into the household. There will be a decrease in demand for goods and services, and if the demand is no longer there the supply or manufacturing will diminish. This causes businesses to cut back on labor. Unemployment claims and rates will increase because there will be more people without jobs, which will cause an increase on interest rates. This affects the government because people will be collecting unemployment creating less monies or resources for the government to use. Decreasing taxes can be beneficial for the individuals and businesses; however, for the government it means less revenues and expenditures; however, this increases the spending power for consumers that helps stimulate the economy. Macroeconomics is a constant cycle and affects the government, households, businesses, and everyone in one way or another. It is a vicious cycle that affects not only one entity, but it affects every entity. For instance, when there is consumer spending it comes around full circle in a positive manner helping every entity and putting more growth into the economy.
Colander, D. C. (2010), Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin