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The Economy of Today - Essay Example

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Macroeconomics in general deals with the behavior of the entire economy, incorporating booms and recessions, the gross output of goods and services, the increase in output, inflation, employment level, balance of payment status and exchange rates. All the policies and actions…
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Download file to see previous pages If the GDP is freed from the chances being affected by inflation, then constant prices need to be maintained. This also helps us to compare the status between two time periods. The resultant GDP reached is called real GDP (nominal GDP adjusted for price changes). GDP can be measured in three ways: by calculating the gross final goods and services produced within the nation at a given period of time; from the income side, by calculating the income generated at every stage and by summing up the value added at each stage of production. Its identity may be written as:
The employment rate is the ratio of employed people to the total population. It is actually the percentage of potential employees actually employed. When a nation has a higher employment rate it is likely that it will have a higher standard of living. It is the capacity of a country to engage its people in work and thus generate income for itself. Unemployment is one of the major concerns of the governments of different nations.
Another parameter which duly affects the economy and mainly the GDP is inflation rate which may be defined as the rate of growth of price index. This is equivalent to the rate of fall in purchasing power of money. If P1 is the price level in year 1 and P2 is the price level is year 2 (P2>P1), then the rate of increase in price level (inflation rate) from year 1 to year 2 is calculated by the following formulae:
Interest rate in an economy essentially denotes the lending rate of banks. It is the opportunity cost of investing in a certain venture. The gain sacrificed by not investing the same amount in another alternative venture or scheme is the opportunity cost. When an individual X (say) lends money to another individual (Y), he is likely to charge an annual interest which is either equal or more than the return gained by investing the amount in some other venture, possibly the bank. If he charges less then he would be a loser.
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