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macroeconomic

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Is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This include national, regional, and global economies.

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Macroeconomic encompasses a variety of concepts and variables, but three are central topics for macroeconomic research. Macroeconomic theories usually relate the phenomena of output, unemployment, and inflation.

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Output Output in economics it the “quantity of goods or services produced in a given time period, by a firm, industry, or country” Whether consumed or used for further production.

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Output can be measured as total income, or, it can be viewed from the production side and measured as the total value of final goods and services or the sum of all value added in the economy.

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A variety of measures of output are used in economics to estimate total economic activity in a country or region, including GDP, GNP, and NNI.

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**Gross domestic product (GDP)**

GDP is the market value of all officially recognized final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country’s standard of living.

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Determining GDP Determining GDP by finding the sum of all producers’ incomes. GDP = C + I + G + (X – M ) C = private consumption. I = gross investment. G = government spending. X = export. M = import.

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**Gross national product (GNP)**

GNP is the market value of all product and services produces in one year by a labor and property by resident of a country.

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Unemployment The amount of unemployment in an economy is measured by the unemployment rate, the percentage of workers without jobs in the labor force. The labor force only includes workers actively looking for jobs. People who are retired, pursuing education, or discouraged from seeking work by a lack of job prospects are excluded from the labor force.

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**Types of unemployment –**

1) Classical unemployment. 2) Frictional unemployment. 3) Structural unemployment.

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**Inflation and Deflation**

Inflation is a rise in the general level of prices of goods and services in an ;economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services.

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Deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0%.

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Interest

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Is a fee paid by borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds.

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Types of interest – Simple interest – is calculated only on the principal amount, or on that portion of the principal amount that remains unpaid.

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**At = the cumulative amount after t years. A0 = the initial balance. **

The amount of simple interest is calculated according to the following formula: At = A0*(1+t*r) At = the cumulative amount after t years. A0 = the initial balance. t = time (usually measured in years). r = the period interest rate.

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Compound interest – arises when interest is added to the principal, so that, from that moment on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding.

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Nominal interest rate – refer to the rate of interest before adjusting for inflation, or, for interest rates “as stated” without adjustment for the full effect of compounding. An interest rate is called nominal if the frequency of compounding is not identical to the basic time unit (normally a year).

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Effective interest rate – is the interest rate on a loan or financial product restated from the nominal interest rate as an interest rate with annual compound interest payable in arrears.

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**The effective interest rate is calculated as if compounded annually.**

𝒓= (𝟏+ 𝒊 𝒏 ) 𝒏 -1 r = effective annual rate. i = nominal rate. n = number of compounding periods per year.

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Real interest rate – is the rate of interest an investor expects to receive after allowing for inflation.

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Fisher equation – The relation between real and nominal interest rates and the expected inflation rate is given by the fisher equation: (1+R = (1+r)*(1+𝝅 R = nominal interest rate r = real interest rate 𝝅 = expected inflation rate

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Exchange Rate - An exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regards as the value of one country’s currency in terms of another currency

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Currency depreciation – is the loss of value of country’s currency with respect to one or more foreign reference currencies. Currency appreciation – is the increase of value of a currency. The appreciation of a country currency refers to an increase in the value of that country’s currency.

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Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 19 What Macroeconomics Is All About.

Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 19 What Macroeconomics Is All About.

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