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Economics

GDP:  Gross Domestic Products (GDP). GDP is the market value of all final goods and

services produced in a country in a given year. GDP consists of four parts.

This are-

• Personal consumption expenditure

• Gross private domestic investment

• Government consumption expenditure and gross investment

•

 Net exports of goods and services

Increase or decrease in any of this variable affects the overall GDP. If government increases it’s

spending than the GDP increases. If private business sector increases its investment

expenditures, GDP will increases. A fall in investment would cause a decline in consumption,

which would cause a decline in GDP. On the other hand, an increase in investment would cause

an additional increase in investment consumption expenditures, which would cause an additional

increase in GDP. In Bangladesh GDP growth rate is 5.83 .

GDP = Consumer spending + investment + Govt. spending + (Export-import)

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GNP: Gross National Product (GNP). GNP is the total value of all final

goods and services produced within a nation in a particular year, plus income earned byits citizens (including income of those located abroad), minus income of non-residents located in

that country. Basically, GNP measures the value of  goods and services that the country's citizens

 produced regardless of their location. GNP is one measure of the economic condition of a

country, under the assumption that a higher GNP leads to a higher quality of living, all other things being equal Gross National Product (GNP) is often contrasted with Gross Domestic

Product (GDP). While GNP measures the output generated by a country's enterprises - whether 

 physically located domestically or abroad - GDP measures the total output produced within acountry's borders - whether produced by that country's own firms or not.

When a country's capital or labor resources are employed outside its borders, or when a foreign

firm is operating in its territory, GDP and GNP can produce different measures of total output.

Macroeconomics:  The field of economics that studies the behavior of the aggregate

economy. It is primarily concerned with variables which follow systematic and predictable paths

of behavior and can be analyzed independently of the decisions of the many agents who

determine their level. More specifically, it is a study of national economies and the determination

of national income.

Macroeconomics deals with four factors that concern a business:

1. Economic growth,

2. Inflation,

3. Interest rates and

4. Unemployment.

1. Economic growth: Economic growth refers to an increase in total spending in the

economy. It shows up as an increase in gross domestic product. Economic growth can be

measured in nominal terms, which include inflation, or in real terms, which are adjusted for 

inflation. For comparing one country's economic growth to another, GDP or GNP per capitashould be used as these take into account population differences between countries. It means that

the firm can produce more, provide more profits to owners and employ more workers. Economic

growth can be a two-edged sword. Too much growth by a firm can eventually to problems in

 production and out of costs.

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2. Inflation: Inflation refers to a general increase in prices or an increase in the prices of 

most goods and services. The most popular measure of inflation is the consumer price index

(CPI). The impact of inflation on business can be severe. As inflation increases, more money is

required for consumers to purchase the same amount of goods. In one view a more rapid rate of 

money growth plays an active role in inflation and results either from mistaken policies of the

Federal Reserve or the Federal Reserve subordinates itself to the fiscal requirements of the

federal government and finances budget deficits through money creation. According to this view,

the control inflation rests with the Federal Reserve and depends upon its willingness to limit the

growth in the money supply. Another problem with inflation is the uncertainty it causes,

especially if inflation rates are high. Because prices are increasing rapidly, managers do not

know how to react. If all business raises their prices to offset their own increasing costs, it will

cause even more inflation. Since inflation can affect both sales and costs of doing business, an

astute manager will watch inflation data closely and be prepared to react when necessary tooffset inflationary cost increases.

 

3. Interest Rates:  Interest is the price paid by individuals or business to borrow money.

Rate expresses that price as a percentage per taka of funds borrowed.

Interest rates affect business in three significant ways-

First, rates increase the total price to customer pay that is the credit for product and services.

Second, most businesses borrow money to run their daily business.

Third, interest is on the expansion of a business.

If interest rates are increased people are not eager to borrow money from bank or financial

institution. As a result, consumption will be decreased as well as production will be decreased. In

the same way sell and investment will be lessened. All of this is affected to economic growth. It

is known to all that economy is the back bone of a nation. So, if economic growth is interrupted

 by interest rates, our development will not be possible. Thus our unemployment problem will not

 be solved; otherwise it will stable or increase.

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4. Unemployment:  Wanting to work but not having a job, it is called unemployment.

Unemployment is usually measured by the unemployment rate. The rate of the number of people

classified as unemployment to the total labor forces is called unemployment rate.

There are several forms of unemployment and they have some causes.

Forms of unemployment Causes

1.Frictional Unemployment The time required to find a job.

2.Structural Unemployment Inappropriate skills.

3.Seasonal Unemployment Seasonal nature of jobs.

4.Cyclical Unemployment Insufficient growth of economy.

Frictional Unemployment: Frictional unemployment refers to people who are looking

for work and will eventually find job if they keep looking.

Example: If anyone don't try hard to find work or don’t want to go abroad for work is like

frictional unemployment.

Structural Unemployment: Standard unemployment refers to people who can’t find

 job because the skills they pose are not appropriate for this job.

Example: Suppose any firm wants accountant, but the applicant completed his/her graduation in

management, that’s why he can’t get that job because of his skill which the firm wanted.

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Seasonal Unemployment: Seasonal unemployment refers to people in a situation in

where the job is available only at certain seasons of the year.

Example: In a construction firms, there they need many employees, but when their construction

is completed their job is also finished.

Cyclical Unemployment:  Cyclical unemployment refers to people who can’t find job

 because a decline in economy has caused employers to cut back on hiring. Many of this people

will have to wait economy to improve before they can find job.

Example: When the employees dies-charged for recession is like seasonal unemployment.

Unemployment has an impact on economy. If unemployment rates high than the people whocurrently holding job will be less likely to take a chance on a new higher paying job for fear that

they might also end up unemployed if the new job doesn’t work out.

Monetary Policy: Changing the money supply to change interest rates directly, thus

influencing inflation, growth and unemployment is called monetary policy.

Interest rate is the key point of monetary policy. If interest rate increases, people will not

interest to loan. Suppose, interest rates increase 10%-20% people will not interest to borrow

money from bank and other financial institution. In the other case, interest rates decrease 10%-

5% people will interest to borrow money from bank and other financial institution. In this

situation, inflation will be created, economic growth will be increased and unemployment will be

showed.

Fiscal Policy: Raising or lowering taxes or government spending in order to influence

growth unemployment and inflation is called Fiscal Policy. To promote economic growth, reduce

unemployment, control inflation and adjust interest rates are the main target of fiscal policy. If 

taxes and government spending increases, our economic growth and GDP will decrease. Vis-a-

Vis inflation will be rising. At the same time unemployment will be created. On the other hand,

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if taxes and government spending are decreased our economic growth and GDP are increased.

Besides inflation will not be raising and unemployment will be created.

At last we can say that Govt. needs both monetary and fiscal policy to deal with the ups and

downs of the business cycle.

The Business Cycle: A somewhat regular pattern of ups and downs in aggregate

 production, measured by fluctuations in real GDP, known as the business cycle.

The business cycle has four parts. One stage is the recession during which the GDP is falling. It

falls for at least two quarters, then the govt. official declares that are cession has occurred.At that

 point the business cycle enters the next stage, which is called the trough. This is usually a short

stage. It is followed by a period of years during which the GDP rises. This period of economic

growth is called an expansion. Sooner or later growth stops and the GDP enter the fourth stage,

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called the Peak. The business cycle peak is usually a very short stage and is followed by a

recession that marks the beginning of a new business cycle.