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Week 2 Individual Paper Eco/372

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Week 2 Individual Paper
University of Phoenix
Principles of Macroeconomics
ECO/372

Week 2 Individual Paper
To understand the economy of a country, a person must understand the Gross Domestic Product. The Gross Domestic Product, or GDP, is an economic indicator that measures the total output of products and services of a country (Amadeo, 2014). The GDP includes all products and services produced by every company in that country (Amadeo, 2014).
The Gross Domestic Product is separated into several components. One component used to measure GDP is nominal GDP. Nominal DGP indicates the absolute output of a country and is measured quarterly by the Bureau of Economic Analysis (BEA) and is the raw measurement that estimates price increases of products into the GDP (Amadeo, 2014). The BEA must adjust the estimates monthly when updates are received to remain accurate (Amadeo, 2014).
Real GDP compares one country to another and is calculated by removing the effects of inflation on products and measures the increase in prices from a year to year (Amadeo, 2014). Real GDP will be lower than nominal GDP because a price deflator is used (Amadeo, 2014). The price deflator is determined by comparing the current-dollar ratio of a series to the corresponding chained-dollar value, and multiplying it by 100 (U.S. Department of Commerce Bureau of Economic Analysis website, 2009).
Additional factors that affect the GDP are the unemployment rate, the inflation rate, and the interest rate. The unemployment rate is the percentage of potential workers who are unemployed in the total labor force (Picardo, 2013). The unemployment rate is closely watched during a recession and recognized as an important indicator of the performance of the labor market (Picardo, 2013).
The inflation rate measures the change in the prices of an amount of services and goods in a year (The Economic

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