372 - Term Definition Paper Running Head: TERM DEFINITION...

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Term Definition Paper Running Head: TERM DEFINITION PAPER Term Definition Paper Correia Lange ECO/372 February 21, 2011 Professor Joseph Compton 1
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Term Definition Paper A group of Keynesian economists set out to develop a terminology and to measure the concepts they defined so that people would have concrete terms to use when talking about macroeconomic problems (Colander, 2008, p. 532). The terms to be defined are Gross Domestic Product (GDP), Real GDP, Unemployment rate, inflation rate, and interest rate. The discussion will continue with an example of the circular flow diagram showing the interaction between households, governments, and businesses. Last, a current economic condition effecting one’s current organization and the most important economic indicator effecting the organization will be identified. GDP Gross Domestic Product (GDP) is a measure of aggregated levels of economic activity such as fiscal and monetary policies. GDP is best defined as value-added of the goods and services produced within a given time within a country (Darity, 2008). Colander describes GDP as the total market value of all the final goods and services produced in an economy in one-year period (p.533). The four expenditures that describe GDP are consumption, investment, government spending and net exports The Components of GDP Consumption: is what households spend on goods such as food, shampoo, furniture, and clothing, while services include doctors, lawyers, taxes and so on. Investment: is not when individuals buy stock, but rather companies borrowing to buy equipment, factories or other goods to increase profits. Government Spending: Only expenses that require production by individuals are considered as goods and services the government buys. For example buying equipment for the space program is considered a government expense. What is not included in the 2
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Term Definition Paper GDP but is an important expenditure in government is social security, and unemployment insurance. Since these payments do not involve production from individuals the GDP does include them. Net Exports
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372 - Term Definition Paper Running Head: TERM DEFINITION...

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