Economics Gross Domestic Product Essay

Gross Domestic Product
The term Gross Domestic Product (GDP) is used to refer to the sum total of the monetary value of all the finished goods and services produced in a country’s economy over a given period of time usually taken as one year. It includes both public and private consumption, investments, government outlays and exports less imports in that particular time period (Faith, 2005).
Real GDP
Real GDP on the other hand is a macroeconomic measure of an economy size adjusted to the price changes and inflation in a given economic time period. In such an economic time, real GDP is the year’s nominal GDP stated in the based year price level. It is usually expressed in terms of a percentage (Justus, 1999).

Interest Rate

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Interest rate is the rate which is paid for the use of money (a principal). This is given a relative percentage and is subjected to change with changes in inflation rate and government policies (Justus, 1999).

Inflation Rate

This is the percentage increase in prices of goods and services in a given period of time and like in the GDP, this time period is usually taken as one year. There are different types of inflation rate ranging from hyper inflation, creeping inflation, demand pull inflation and cost push inflation (Faith, 2005).

Unemployment Rate

The term unemployment is used to refer to a situation in which people, fully willing and capable of working find no jobs to do. Thus the term unemployment rate which is usually taken in a specific time period and usually expressed in a percentage shows the rate at which the unemployment level changes over a specific time period.

In an economy, there is always a circular flow of goods and services between the different economic sectors. This circular flow is evident in both the open and the closed types of the economy. In this flow, the house holds purchase goods and services and provides the factors of production to the business sector. The business sector in turn pays for these factors of production and other transfer payments to the government sector. The government sector through its expenditure, gives transfer payments to the household sector and to the business sector besides providing factors of production to the latter sector (James, 2003).

Generally the functionality of the Freddie Mac which is one of the U.S biggest mortgage lenders is been affected by the subprime mortgage crisis. The interest rates within the financial markets have radically changed compounded with an overwhelming crisis in the financial market and the general economy in the U.S.


James, U. (2003) Principles of Macroeconomics. London, Routledge

Justus, P (1999) Economics. New York, Blackwell Publishers.

Faith, R (2005) Introduction to Economics. Mahwah, NJ, Praeger.