The Term Gross Domestic Product - Essay Example

These rates are monitored and patterns are formed depending on the changes within the rate; those that monitor the rate try to detect and understand the ways that the levels increase or decrease, or why there are so many or so few people that are unemployed and to the reasons behind those factors. The inflation rate is the measure of the increase of a price index. The rate of decrease in the power of purchasing is shown to be equal, or within the same range as the increase of a price index. The interest rate of an item, service, or monetary loan is the percentage of the principle that is paid as interest over a specific duration of time. The interest is involved in the inflation rate of an item as it adds or subtracts from the overall price index.

The circular flow diagram illustrates the interaction of households, government, and business by showing how each of them influences the other and progresses the workings of each other. The diagram shows the chain reaction that they all cause for each other, how the individual benefits the whole. The clockwise flow of the products, goods, and services are equally balanced by the counterclockwise flow of payments; everything is done in a pattern that can decrease or increase. Households purchase from businesses that get their products from their producers. The government falls into place when they charge taxes on the items being produced by companies and bought by consumers or households. Firms that are involved in this circle make factor payments, which include wages, interest payments, rent, and royalties in exchange for their labour services and any resources that they may buy. The circular flow diagram shows how each factor of the chart needs each other factor to function properly and to maintain a business; it shows action and reaction in regards to consumerism. The circular flow chart is given its name because of this pattern, the continuous flow that these factors involve themselves and each other.