Fundamentals of Microeconomics Essay

Custom Student Mr. Teacher ENG 1001-04 2 December 2016

Fundamentals of Microeconomics

Macroeconomics defined as “the study of the economy as a whole, which includes inflation, unemployment, business cycles, and growth” (Colander, G-5). There are many fundamentals that affect the economy in both a good and bad way. These fundamentals affect the economy, and they also show the growth of the economy. The fundamentals are gross domestic product (GDP), real gross domestic product, nominal gross domestic product, unemployment rate, inflation rate, and interest rate.

Defining the fundamentals

Gross Domestic Product is “the total market value of all final goods and services produced in an economy in a one-year period” (Colander, G-3). GDP calculation is very important because it calculates the growth, decline, or stand still have the economy. When the GDP is calculate, it is base on previous numbers not future numbers. For example, the GDP is +2%, which means a growth of 2% for the previous year. Real Gross Domestic Product (GDP) is “the market value of final goods and services produced in an economy, stated in the prices of the giver year” (Colander, G-7). Real GDP is an inflation measure of the production of goods and services in the economy. It reflects price changes throughout the year. The real GDP is base more on realistic numbers instead of a guess. The calculation is more accurate concerning the gross domestic product for the previous year. Nominal gross domestic product is calculate at existing prices.

Nominal GDP does not reflect inflation and is known as “current dollar GDP.” Nominal GDP can either be higher or lower than the GDP. When nominal GDP is calculate without reflecting inflation, which can show a higher growth in the economy when it is lower or at a standstill. Unemployment rate is “the percentage of people in the economy who are willing and able to work but who are not working” (Colander, G-9). The unemployment rate is calculate every month, and it shows the people who are looking for work. This rate does not include individual like the elderly, people working only a few hours a week or people who do not send resumes into different business. The unemployment rate shows that based on the number of people in the United States, a certain percentage is actively looking for work but has not found work.

Inflation Rate is the percentage rate of change in price over a certain period usually a year. The inflation rate is calculate using last year price for a particular item to determine how much it will cost. Inflation rate determines the price of many things that include the price of the dollar. When individual calculates the inflation rate, it can help others determine if it is better to buy certain products today or later. Interest Rate is “the price paid for the use of financial asset” (Colander, G-4). Interest rate is a certain percentage that an individual has to pay on borrowing money or purchasing something. The interest rate is base on the credit score and the item purchase. The rate can go from being a very low number to as high as 10 percent.

Purchasing of Groceries

The purchase of groceries affects government, households, and business daily. The government determines the tax placed when household purchase groceries. Every household in the United States purchase groceries to survive. The businesses are affected by grocery purchase through the purchase. The business is affected by the purchases made because it shows what is being purchase more and what is being purchase less. The flow of resources take place in continues circular motion. The groceries are receive by the business from the local food processing plants. The employees at the local business placed the items on the shelves and groceries are ready for sell. The household members purchase the groceries from the business and pay the taxes government placed on the items. This continues to take place daily and will always continue.

Massive layoff of employees

The flow of resources takes place, and it affects businesses in both good and bad ways. Most business can employee the previous laid-off employees to allow taxes to be paid. When businesses are not able to employ more employees, unemployed do not demand good and services. When employees are layoff, there is no income coming into the household. The household is affected because there is no income, which in return means less good and service that can be purchase. When massive layoffs of employees take place in the economy, it affects government because they are paying unemployment benefits, Medicaid, and giving food stamps and more welfare to those eligible.

Decrease in taxes

When the government decides to decrease tax, it affects everyone differently. Government is affected in a good way, but it occurs in the long-run supply and demand curve. The government is losing more because taxes are lower but more money is being receive. In the long-run supply and demand, the government receives more money because the household is purchasing more good and services. The household is excite because more money is coming into the household because taxes are lower. The lower the tax, the more income, which mean more good and services are being purchase. Businesses are excite because more goods and services are being purchase. The flow of resources occurs and is affected in the long-run supply and demand curve.


Colander, D.C. (2010). Macroeconomics (8th ed.) Boston, MA: McGraw-Hill/Irwin.

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