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# Gross Domestic Product, Real GDP, Unemployment Rate, Inflation Rate, Interest Rate

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a. Gross Domestic Product (GDP)

b. Real GDP

c. Unemployment rate

d. Inflation rate

e. Interest rate

I need to explain how the circular flow diagram illustrates the interaction of households, government, and business. Also, describe how current economic conditions are effecting my organization or one which you are familiar. Identify the most important economic indicator affecting my organization and explain why.

Note my organization is an outsourcing firm.

https://brainmass.com/economics/inflation/gross-domestic-product-real-gdp-unemployment-rate-inflation-rate-interest-rate-168317

#### Solution Preview

a. Gross Domestic Product (GDP)

b. Real GDP

c. Unemployment rate

d. Inflation rate

e. Interest rate

a. Gross Domestic Product (GDP) and Real GDP

GDP generally is defined as the market value of the goods and services produced by a country. One way to calculate a nation's GDP is to sum all expenditures in the country. This method is known as the expenditure approach and is described below.
Expenditure Approach to Calculating GDP

The expenditure approach calculates GDP by summing the four possible types of expenditures as follows:
GDP = Consumption
+ Investment
+ Government Purchases
+ Net Exports

Hence GDP is a measure of the quantity of the goods and services that can be bought with the income of all individuals in the economy, in a year. Thus The GDP is Gross Domestic Product. Gross Domestic Product (GDP) is the total value of final goods and services produced within a country's borders in a year.
Real GDP will be GDP without the effect of inflation and shows the real income of the nation. On the other hand Nominal GDP is affected by inflation.
However GDP does not take care of other factors of productivity such as inequalities of income Moreover it also misses the qualitative factors like literacy rate, infant mortality rates, life expectancy. Thus these socio demographic rates can provide the answers as they will tell about the quality of life. and hence its not sufficient measure. Thus this should include all the following factors:

1. Literacy levels 2. Quality of governance 3. Employment 4. Health Standards like infant mortality rate 5. Quality of Physical and Social Infrastructure 6. Quality of Human Resources 7. Equality in Distribution of Income
Therefore one has to see both quantitative and qualitative factors for determining the country's development and productivity.

Real GDP
Nominal rate = (1+real rate)*(1+ Inflation rate)-1
Thus if the inflation rate is say 10% and real rate is negative say -5%. Then there will be increase in nominal rate by the
(1-.05)*(1+.1)= (.95*1.1)-1 = 1.045-1 or 4.5%

Thus here nominal rate is 4.5% even though the real rate is negative 5%
Nominal numbers can be nominal wages, interest rates and gross domestic product (GDP). These refer to amounts that are paid or earned in money terms. A paycheck shows money wage and a car loan agreement indicates the nominal interest rate. Nominal GDP refers to the amount of money spent to buy the production of a country. These numbers include impact of inflation or deflation. Real GDP will be GDP without the effect of inflation and shows the real income of the nation. On the other hand Nominal GDP is affected by inflation.
c. Unemployment rate

Unemployment is the situation of joblessness for a person who is willing to work.
Proposed by the American economist Milton Friedman (1912-1992), NARU refers to the rate of unemployment, which occurs when all markets are in an equilibrium position. Thus the natural rate of unemployment is the equilibrium rate of unemployment. There are four type of unemployment:

? Frictional unemployment: This is simply the time it takes a company to match a qualified job applicant with the right position. It also includes people who are between jobs. It is simply the time it takes for a worker, having lost his job, to register at the job agencies, read the adverts in the papers or on the internet, write or update their CV, choose and apply for new positions, go to interviews, and take up a new position

? Structural unemployment: This is unemployment that results from fluctuating consumer taste and/or technological innovation. If a worker has the opportunity to learn new skill sets, or move to a new employer, that's OK. If not, it can be problematic -- witness the recent debate over outsourcing.

? Seasonal unemployment is a Periodic unemployment created by seasonal variations in particular industries

? Cyclical unemployment happens in times of recession.

d. Inflation rate
In economics, inflation is an increase in the general level of prices of a given kind. General inflation is referred to as a rise in the general level of prices.

Cost-Push Inflation
The text "Economics" (2nd Edition) by Parkin and Bade gives the following explanation for cost-push inflation:

"Inflation can result from a decrease in aggregate supply. The two main sources of decrease in aggregate supply are

* An increase in wage rates
* An increase in the prices of raw materials

These sources of a decrease in aggregate supply operate by increasing costs, and the resulting inflation is called cost-push inflation. It is also known as supply-shock inflation is a type of inflation caused by large increases in the cost of important goods or services where no suitable alternative is available.

The causes of cost-push ...

#### Solution Summary

Gross Domestic Product, Real GDP, Unemployment Rate, Inflation Rate, Interest Rate are explained.

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