Eco/372 Week 2 Assignment

1339 words - 6 pages

Running head: Fundamentals of Macroeconomics Paper

Fundamentals of Macroeconomics Paper – Part 1

Fundamentals of Macroeconomics Paper – Part 1
* Gross Domestic Product (GDP) – The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

* Real GDP - An inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices.

* Nominal GDP- A gross domestic ...view middle of the document...

For instance, they get high income from the purchases. However this depends on the demand and supply of the groceries. If the demand for the grocery is high and supply is low then the businesses have more income (Welch, and Gerry, 2010). On the other hand, if the demand is low and supply is high then the purchasing the groceries provides the business with low income since the prices are low. Therefore, purchasing of groceries affects the businesses operations since they are determined by the amount they receive from such purchases. The purchase of groceries also affects the government in many ways. One of them is that the government determines the taxes to be imposed on the groceries depending on the need. It also affects the government in determining other commodities to be sold and where they ought to be sold.
Purchase of groceries is a personal consumption that represents the demand for groceries that is placed on the producers by the households. The flow of resources of purchase of groceries is in a circular flow. This is because the firms produce the groceries using factors of production that are owned by the households. Therefore, the production of the groceries generates income to both the households and businesses. Purchasing of groceries which is a personal consumption spending results to flow of resources from firms to households. In addition, there is flow of consumer goods from the businesses to the households. Therefore, purchasing of groceries results to a flow of factor services from the households to the firms. There is also a flow of payment incomes from firms to households. On the other hand, there is a flow of resources to the government in form of taxes from both the household and the businesses.

Massive layoff of employees is cited as one of the ways in which organization use to cut their operation costs. However, on the contrary, massive layoff of employees is not an effective way to cut costs since it has an adverse effect on households, government and also the businesses. Massive layoff of employees affects the households in many ways. For instance, probably the most issue, it reduces household’s disposable income making their purchasing power reduced. As a result, the economy of a country suffers since employees cannot put money back to the economy (Welch, and Gerry, 2010). In addition, the households who are not laid off are directly affected. They feel their jobs are not secure and this reduces their morale and productivity.
On the other hand, massive employee layoff affects businesses. One of the effects is that there is increase in operational costs since organizations incur more expenses in recruiting, developing and training new employees. In addition, the laid off employees file lawsuits against the businesses hence they incur extra expenses in settlement fees and payments if the employees win the law suits. Therefore, massive layoff of employees has an effect of reducing businesses retained earnings due to...

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