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Principles of Macroeconomics Individual: Fundamentals of Macroeconomics Instructor: Robert Watson 08 June 2013 Donna Montanan Describe the following terms in your word. Gross domestic product (GAP) The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. Ђ Real GAP Real variable, such as the real interest rate, is one where the effects of inflation have been factored in. Real Gross Domestic Product measures the worth of all the odds and services produced stated in the prices of some base year. Nominal GAP A nominal variable is one where the effects of inflation have not been accounted for. The Nominal Gross Domestic Product measures the worth of all the goods and services produced stated in current prices. Ђ Unemployment rate Unemployment occurs when a person is laid from an employer or is seeking employment without success. The unemployment is used to measure the condition of Fundamentals of Macroeconomics Echoes By disseminate by dividing the number of individuals on unemployment by the number of individuals in the labor force. Inflation rate It is based on the rising price of good and services and falling purchasing power. This measurement shows how fast currency loses value.

This is calculated by how fast prices for goods and services rise over time, or how much less one unit of exchange buys now equated to one unit of exchange at a given time in the past. Interest rate The annulled cost of credit or debt-capital calculated as the percentage ratio of interest to the principal. Each bank can regulate its own interest rate on loans but, coal rates are about the same from bank to bank. In overall, interest rates rise in times of inflation, bigger demand for credit, tight money supply, or due to higher reserve requirements for banks.

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Consider the following examples of economic activities: Purchasing of groceries Massive layoff of employees Decrease in taxes Purchasing groceries and other consumer products it affect the amount of taxes organization pay the government. This is sales tax paid to local governments which the taxes are used toward many projects such as city improvements, roads, schools, overspent funded programs, other health and children programs. Some household’s families may purchase at small local markets and this helps support small businesses in their community.

Depending on a family’s income they budget a food allowance therefore, more income larger purchases and paying more tax. When consumers are spending money on food and services they support organizations and help their profits and this will keep employees from losing their jobs and increasing the unemployment rate. Consumers may pay more at the smaller local business but this can help the economy. The most positive economic tendency out of the three choices is to decrease taxes.

When the government decreases taxes, disposable income increases. That translates to higher demand (spending) and increased production (GAP). A tax decrease will increase disposable income, because it leaves households with more money. Businesses. Describe the flow of resources from one entity to another for each activity. References Colander, D. C. (2010). Macroeconomics (8th De. ). Boston, MA: McGraw-Hill/Larkin. Library of Economics and Liberty – http://www. Economic. Org/library/sources. HTML

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