Macroeconomic
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Macroeconomic
Introduction
Economic is a social science that typically studies the production, distribution and consumption of good and service. The study of economic is divided into two branches, microeconomic and macroeconomic. In this paper I like to concentrate on macroeconomic. In there, macroeconomics terminology will be defined, and the description of macroeconomic activity among the major sectors and its markets, or so called the circular flow model.
Macroeconomic
Macroeconomic is the study of the behavior of the economy as a whole. This is the very complicate field and there are many factors that influence it. Macroeconomic analysis focuses on these things: Gross Domestic product, unemployment, inflation, and interest rate.
Gross Domestic Product (GDP) is the total market value of all final goods and services produced in an economic in one year period. (Colander, 2004). GDP also is an economic indicator it measure the size of economic by this formula ( Wikipedia )
GDP = C + I + G + NX
Where
C is private consumption, personal expenditure of households such as food, rent, medical expense, and new housing.
I is defined as business investments in capital.
G is the sum of government expenditures on final goods and services
NX are “net export”, NX = gross exports – gross imports
Real GDP, is a GDP adjusted for inflation (colander, 2004), and which reflects only changes in prices.
Unemployment rate: Unemployment is the condition of willing workers lacking job. To measure the unemployment rate is take the number of unemployed workers divide by total civilian labor force. The unemployment rate tells an economist how many people from the available of labor are unable to find work(Wikipedia) .Unemployment is low when GDP show growth rate, or with rising of GDP levels, we know that out put is higher, and more labors are need to keep up with the greater levels of production.
Inflation rate is the rate of increase of the average price levels, or the rate of decrease of the purchasing power of money. (Wikipedia)
Inflation rate = Po – (P-1)/(P-1)
Where: Po is the current average price level and P-1 is the price level a year ago.
Interest rate: Interest is a fee paid on borrowed money. The fee is a compensation to the lender for forgoing other useful investments that could have been made with the loan money. The amount lent is called the principal. The percentage of the principal which is paid as fee (interest), over a certain period of time, is call the interest rate.(Wikipedia)
Simple interest rate : C (simple interest) = p (principal) * r(rate) * t(time)
The circular flow model illustrates the interaction among the macroeconomic sectors and macroeconomic market.
Macroeconomic Sectors
Household sector: this include every one, all people, seeking to satisfy unlimited wants and needs. This sector is responsible for consumption expenditure. It also owns all productive resources.
Business sector: this includes the institutions, and that undertake the task of combining resources to produce goods and services. This sector does the production. It also buys capital goods with investment expenditure.
Government sector: this includes the ruling body of the federal, state, and local government. Regulation is the prime function of the government sector, especially passing laws, collecting taxes, and forcing the other sectors to do what they would not do voluntarily.
Foreign sector: this includes every one and every thing (households, businesses, and governments) beyond the boundaries of the domestic economy. It buys exports produced by domestic economy and produces imports purchased by the domestic economy.
Macroeconomic markets
Product markets: the product markets exchange the production of final good and services, or what is termed gross domestic product. The buyers of this production are the macroeconomic sectors.
Resource Markets: The four factors of production, labor, capital, land, and entrepreneurship. Business sector use the resource market to make the production. The payments then generate the income received by the household sector which owns the resource.
Financial Markets: The commodity exchanged through financial market