Macroeconomics is the study of the economy as a whole which includes inflation, unemployment, business cycles, and growth. It is very important to understand certain terms and how they affect the economy. This paper will also attempt to explain various economic activities and how they relate to the government, households, and businesses. One must also understand the flow of resources from one entity to another for each of the activities. There are certain key terms one must know in order to have a better understanding of the fundamentals of macroeconomics. These terms include gross domestic product (GDP), real GDP, nominal GDP, unemployment rate, inflation rate, and interest rate. GDP is a way to gauge the health of a country’s economy. GDP represents the entire dollar value of all goods and services produced over a certain time frame. There are two basic ways to compute GDP, the income approach and the expenditure approach. The income approach basically means adding up what everyone earned in a year. The expenditure approach involves adding up what everyone spent. Real GDP is often referred to as “constant price”, “inflation-corrected” GDP or “constant dollar GDP”. This basically means it is the nation’s total output of goods and services, adjusted for price changes. Nominal GDP is the market value of all final goods and services produced to include inflation. The unemployment rate is a percentage of the total labor force that is unemployed but is actively seeking employment and willing and able to work. Inflation is essentially the rate at which the general level of prices for goods and services is rising while purchasing power is falling. For example, “If the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation, your dollar can't buy the same goods it could beforehand.”