Fundamentals of Macroeconomics



Fundamentals of Macroeconomics

Introduction

Economics is a broad field of study which deals with examining economies from varying dimensions. The field has been particularly important for the development and prosperity of countries. Macroeconomics is the study of behavior or trends of an economy. It involves analysis of large scale factors that affect an economy such as GDP, Inflation rate, Unemployment rate etc. In other words, Macroeconomics examines income, investments, consumption at a national level. It is essential to realize how macro economical factors influence the large scale economic activities. Also, it has a huge impact on our everyday life. People change their preferences and choices due to changing trends of an economy.

The write up explores major economy wide phenomenon like Gross Domestic Product, Interest rate, and inflation rate. The discussion is divided into two major parts: the first part describes important terminologies, while the second part examines the implications of these phenomenons on certain economic activities.

Discussion

Macroeconomic Phenomenon

It is essential to investigate the following phenomenon before understanding their impact:

GDP (Gross Domestic Product)

GDP is an indicator of economic strength of a country within the given period of time. GDP is a single statistical indicator which explains the overall economic standing of a country. Gross Domestic Product refers to the monetary value of all the local goods and services produced within a year (Colander, 2010). GDP increases when farmers sell their agricultural products, organizations export goods, consumers purchase food, clothing etc.

Real GDP

Real GDP is calculated by keeping price constant. It means Real GDP presents the value which is adjusted to inflation or deflation rate. Real GDP is calculated by declaring a single year as the base year. For instance, one can designate 2011 as the base year, and calculate GDP for 2011, 2012, and 2013 on the basis of ...