Macroeconomics: Economics And The Principles Of Economics

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The principles of economics come from the relationship between an individual’s wants and desires and the resources available. Because of the consumer-based society, individuals are designed to spend money on the best goods and services to provide a comfortable standard of living. However, these goods and services cannot be produced unless there is an ample supply of resources, such as land, raw materials, innovation, and labor. Proper use of these resources allows the production of goods and services that fulfill the wants of individuals. Economics is defined as a social science concerned with making optimal choices under conditions of scarcity. As a subunit of economics, macroeconomics is concerned with the economy as a whole. It seeks to find an outline for the economy, measuring total output, total employment, total income, and other various economic problems. Aggregate output is used as the primary measure of the economy’s performance. Gross domestic product defines aggregate output as the value of goods and services produced annually. GDP can be determined through two approaches: the expenditures approach and the income approach. The expenditures approach is the sum of all spending on final goods and services in a year. Through the expenditures approach, GDP can be calculated by adding up consumption by households (C), investment by businesses 〖(I〗_g), government purchases (G), and net exports (X_n). On the other hand, the income approach focuses on the addition of all incomes generated by the production of the final goods and services. To calculate GDP with the income approach, add wages, rents, interest, profits, and statistical adjustments. The preferred result would be for GDP to rise at a healthy but not ... ... middle of paper ... ...nce discouraged workers are not counted in the labor force, they are not considered when calculating unemployment. The effect on GDP from discouraged workers is similar to that of unemployment. Because people are not working, they are not producing the maximum amount of goods, creating the GDP gap (Discouraged). Countries throughout the world all seek economic growth and prosperity. Economic growth can be measured as an increase in real GDP or an increase in real GDP per capita over a period of time. An increase in output relative to the population size engenders higher income, which promotes a higher standard of living. Ultimately, increasing GDP improves the products and services demanded by consumers. When economic growth is suspended, GDP will always decrease because of the increased inability to employ individuals (McConnell, Brue, and Flynn 486-539).
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