Real GDP refers to economic measurement output of a country subtract inflation effect. GDP allows economic experts to make economic production comparison for each quarter in an accurate way (Cebula, and Edgar 270). Economists divide nominal GDP by the deflator, which is an inflation measurement ever since the base year. For example, when prices go up by 2.5% from the base year, we will have 1.025 as the deflator. The formula for calculating real GDP is R= N/D, where R stands for real GDP, N is nominal GDP and D is the deflator.
Nominal gross domestic product refers to the total production measure in a country. By nominal, we mean units that measure the production, which in this case refers to a country’s current currency. A real GDP is different from nominal GDP in that we measure it not monetary terms but rather in units of common goods (Cebula, and Edgar 270). We can calculate nominal GDP using three ways. These include the expenditure, the production or income method.
This is the labor force percentage that is in search of a job, yet it does not have one. We usually define unemployment rate as follows:
Unemployed workerunemployed workers +employed workers ×100%
The rate of price changes calculated on a yearly or monthly basis is the inflation rate (Cebula, and Edgar 273). Below is an example that can help in understanding inflation rate.
Suppose the price per gallon of petrol was $ 2.46 in 2006 and $ 3.09 during the year 2007. We then calculate the rate of inflation for the price of petrol as below,
(Price during 2007 –price during 2006)Price during 2007 ×100%. When we substitute the above values, we get inflation rate as 20.38%.
This refers to the amount a lender charges a borrower for the use of resources and we express as a percentage of the principal (Cebula, and Edgar 275). We often express interest rates on an annual basis, or in other words annual percentage rate. The assets taken by the borrower could include consumer goods, cash or large assets including buildings or vehicles.
Purchasing of groceries
Purchasing of groceries affects governments, businesses and households. It affects the government because it determines how much a household can purchase from the local grocery store depending on the state of the economy. In case of inflation, prices will be high for an average consumer and consumers may resort to cutting back their normal spending on groceries (Schunk 13). The amount of groceries purchased affects every household because we must have enough groceries for each to eat. When households cannot meet their grocery needs, then the government comes in to assist, and this is costly. Businesses suffer as consumers move further away in search of groceries offering prices affordable to them.
Massive layoff of employees
This can happen in bad economic times when employers strife to make profits by laying off some employees. However, this may be undesirable to the country’s economy. This is because the laid off workers become jobless and they cannot purchase goods as before thus the taxes to the government reduce (Schunk 11). The households of such employees suffer a lot because they cannot afford their basic and other needs. They might end up depending on the government in making ends meet. Businesses loose skilled labor force and employers stand risks of paying millions to settle payments and fees when the laid off workers file suits.
Decrease in taxes
The government realizes increased revenue when taxes are low. This mostly happens when low taxes combine with controlled government spending (Schunk 10). The decrease in taxes increases disposable incomes of the workforce and thus people can spend more than when taxes are high. This, in turn, leads to increased job opportunities, high GDP growth and businesses will invest in efficient technologies. It also improves the living standards of households as individuals can meet their needs with ease. Increase in government revenue helps the government to increase expenditure on crucial sectors such as healthcare. Businesses realize increased sales and profits because the purchasing power of the consumers is high.
Cebula, Richard, and Edgar Feige. "America's Unreported Economy: Measuring The Size, Growth And Determinants Of Income Tax Evasion In The U.S." Crime, Law & Social Change 57.3 (2012): 265-285. International Security & Counter Terrorism Reference Center. Web. 14 June 2013.
Schunk, Donald L. "Deleveraging The Economy." Business & Economic Review 55.3 (2009): 10-13. Business Source Complete. Web. 14 June 2013.