Fundamentals of Macroeconomics

Fundamental of Macroeconomics

Gross domestic Product

The term Gross domestic product can be described as the total market value of all the goods and services that are being produced in the country, in general perspective gross domestic product can be explained as it is used to observe the overall economy of the country, the basic process of Gross domestic product is divided into two types, first it calculates the overall income of everyone working in the country and secondly it calculate the total expenditure of the country which then result in total GDP of the country. Market prices of the good or services is used to calculate the GDP as it is the value that everyone is willing to buy and sell,

Every country has its own resources and in order to find out how the resources are being utilized in the economy the Gross domestic product denoted by 'y' is being divided into four basic component; consumption (C), Investment (I), Government purchases (G) and Net exports (E)

GDP= Consumption (C) + Investment (I) + Government purchases (G) + Net exports (E).

Real Gross Domestic Product

The real gross domestic product is used to calculate the total value of those product or services produced in current year and whose prices remain constant for most part of the previous year for example if you wanted to calculate the real GDP of potatoes of 2011 you will use its base year price and multiply it with its current quantity (Mankiw, G, N, 2011).

Real GDP = Base year price * Current Quantity produced

Nominal GDP

The term nominal gross domestic product is used to calculate the total value of those product or services whose prices keep fluctuating during the year. For example if you want to calculate the nominal GDP of the Pizza you will use it current ...