Fundamentals of Macroeconomics.

GDP is mainly applied in determining the stability of a country’s economy. Calculations of gross domestic product are commonly done using the expenditure method, which adds total consumption, investment, government spending and net exports (Dolan, 2010).

Real gross domestic product refers to gross domestic product evaluated based on the prevailing market prices in a given year. Real GDP can also be regarded as inflation corrected gross domestic product. Real GDP has the capability to indicate changes in the price level with a high accuracy compared to nominal gross domestic product (Dolan, 2010).

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This refers to the gross domestic product figure that has not received any adjustments on inflation. It is also the value of services as well as goods produced in a given country after the final stage of production.

Increased purchase of groceries by households is a clear indicator of their improved economic status. This fact enhances growth of existing businesses as well as the emergence of new investments. In such a situation, the government benefits from increased tax collections obtained from value added tax and taxation from investments (Dolan, 2010).

This refers to the reduction of the number of people under employment in a given country. The implications of undertaking such a step include negative impacts on the government, households, and businesses. Massive layoff of employees means that a large number of people within a country will have a reduced purchasing power. In such situations, household living standards will come down. businesses will close down due to low purchases, and government’s revenue collection will go down. Economically stable citizens within a country comprise a key pillar of a country’s economy (Dolan, 2010).

Revenues generated from taxation are the principal financers of the government budget. Therefore, a decrease in taxes implies that the government will strain in meeting its expenditures. 

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