Example Of Fundamentals Of Economics Essay

Gross Domestic Product (GDP): It is final monetary value of all the services and products a country produces, within its borders, in some specific period, usually one year. GDP defines a country’s economic strength, and it is usually measured or calculated on two different indexes i.e., PPP and Exchange Rates.
Real GDP: Real GDP incorporates inflation as an important factor too. It is the value of all the services and products produced in a country in a year, on the prices of that year. It is ‘inflation corrected’ and signifies the true value. It is an important economic parameter of a nation.
Nominal GDP: Nominal GDP is not an ‘inflation corrected’ GDP figure. In other words, it is the total value of all the products and services produced in a year and its calculation is based on the current or existing prices. It is also popularly known as ‘ Current Dollar GDP’ and is again a significant figure in Economics of a nation.
Unemployment Rate: it is the rate or count of all the individuals efficient as well as willing to work but cannot to find a suitable job. There are various factors responsible for unemployment in a nation. Unemployment rate plays an important part in any nation’s economic scenario, mostly for the worse.
Inflation Rate: It is the rate at which the cost or prices of goods, services, and products in a country is rising. It increases prices of all the commodities and services in a nation and if it is not controlled, it can even stunt a nation’s GDP growth. Inflation at three percent is good for a nation.
Interest Rate: In a layman’s language, it is the amount charged by a lender to a borrower for the use lender’s assets. Interest rate is basically a fee paid when one borrows money from a financial institution for his or her personal use. There are a number of factors that determine interest rates; most prominent of them is the kind of party involved i.e. a low risk party or a high-risk party.
Purchasing of Groceries: Purchase of groceries is one of the most basic and vital activity that people involve themselves in on day-to-day basis. It is not only vital or important for the end consumers or households but also for governments, businesses, and for the economy. Purchase of groceries affects the household of the farmers or labor class, as they are the direct beneficiaries of the activity. Grocery stores, including the small local shops and the mega-malls and chains like Wal-Mart, directly show how important and significant this activity is with regard to businesses. Undoubtedly, governments benefit too from this act for these stores not only provide employment to many but also fuel a country’s economic growth. Moreover, governments earn taxes for each purchase made by the consumers.
In this case, grocery items come from farmers to the markets or stores that act as an interface to the end customers of these products. The tax collected goes to the state exchequer.
Massive Layoff of Employees: Massive layoff of Employees happens when a business or corporation is in financial trouble and finds it hard to pay its entire workforce and hence this acts as a cost cutting measure. This layoff directly affects Unemployment rate by increasing it and has an adverse effect on country’s economy and that in turn poses a trouble to government. It also affects the households of the employees fired as their source of income ceases to exist, and they find it hard to sustain the basic household expenses. For businesses, this measure is totally financial and it helps them save money, and hence increase revenues. At times this measure also leads to decrease in productivity for a business as the workforce decreases considerably.
This activity leads to transfer of laid off people in the form of resources. They move to different companies looking for other jobs. The money saved is as an important resource for the growth or revival of the business.
Decrease in Taxes: Decrease in taxes is mostly a welcome move. Even though when taxes decrease, the revenue generation for a government decreases but the decrease in taxes is usually happens when the state of nation’s economy is good. The act leads to more income for people and hence they get more to spend on and as their household expenses. The businesses surely appreciate this move as this leads to improved purchasing power by the consumers leading to increased sales business.
Reduction is taxes leads to generation of extra money for common people, and they use it to spend more on their households and hence more shopping. Hence, money, which is the resource, generated in this case, moves from exchequer to people and ultimately to the business.
This clearly goes on to show the correlation that exists between governments, businesses and common people. Finance related action by any of the three entities not only affects the other two but is also a deciding factor in the state and health of economy. Thus the fabric of an Economy is a fine combination of all three entities, making them all very vital and interrelated; a fact that is very evidently at display when we talk about Purchasing of Groceries (Individuals related action), Layoff of employees (Business related action) and decrease in Taxes (a move by governments).