Free «Macro Economics» UK Essay Paper
Table of Contents
In financial economics, the terms nominal and real interest rates are very common and are often confusing to people who do not have deep knowledge of financial economics. The concept nominal interest rate when used within the financial corridors encompasses two fundamental view points. The first one is that of the prevailing rate of interests before inflationary effects are adjusted to bring the raters to logical sense. Secondly, nominal interest rates are taken to mean interest rates as quoted without considering or making adjustments for the compounding effects.
Real interest rate is the exact or rather the perfect opposite of the nominal rates, that is, it is the nominal interest rates after subtracting the rate of inflation at that particular point of time. Real interest rate is particularly used in the banking sector to mean the exact rate of interest the lender receives from the advanced loan. The difference between the two kinds of interest rates is that real interest rate measures the actual return on investments after subtracting the usual inflationary factors that reduce the value on returns. Nominal interests on the other hand quote the face value of returns without taking into consideration the factors that are likely to affect that outcome.
The next common concept in the financial world is inflation which is the continual increase in the general price of goods and services in a country. Important to note is the fact that this upward movement in prices is usually caused by the increase of money supply in the economy which subsequently leads to an automatic fall in the value of the currency of the countr. As already explained, the increase in the prices of either gasoline or healthcare could be taken to mean inflations since a positive increase in the prices is experienced. However, inflation should not be limited to a few items in the market and should incorporate all of the commodities.
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A household survey is any survey carried out at the household level to collect statistical information for hat house. Establishment survey on the other hand is a large scale survey carried out using face to face questionnaires designed to collect information about the attributed of the population.
The unemployment rates
When the unemployment rate is 8.2% and private sector jobs created is 84,000, usually in comparison to the previous periods of recessions, it becomes apparent that this recovery is too low and the 84,000 jobs are not just enough to create a 3% GDP growth which is essential for economic recovery.
Cyclical, frictional, and structural unemployment
Cyclical unemployment can be described as the absence or lack of labor demand by business enterprises to actually provide employment to all those looking for employment. Usually this low labor demand is attributed to the low levels of consumption in the overall economy. Frictional unemployment is the time lapse between jobs either when somebody is looking for a job to that time when he finds it or when he changes from one job to another. Structural unemployment on the hand is the direct result of mismatch between labor demand in the market and the skills and locations of job seekers in the market. The low levels consumptions in the economy that is responsible for creating cyclical unemployment is essentially responsible for creating a mismatch in the labor market leading to structural unemployment.
Inflation is defined as the general rise in price levels in an economy leading to diminishing currency value as the currency purchases less food compared to the previous periods. When the price of a commodity or healthcare rises in isolation, this cannot be said to be inflation since the effect of that increase might not lead to general rise in price levels in the economy.
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Measurements of Economy
To measure and determine the strength of an economy in comparison to other economies, we require variables that can be quantified into a single value. For economic comparison, this is done using GDP calculations where the total wealth of a country is converted into a unit quantity expressed in dollars. When this kind of calculation is done for say China and US, it becomes possible to determine which economy is higher by simply looking at the one with the larger figure.
It is important to note that almost everything in the world can be quantified and a value attached to it. Apart from the natural elements such as air that man has no control, every other element in the planet can be quantified and a unit assigned. Usually, this quantification is done in terms of the prevailing currency used as a means of exchange, for instance dollars, yen, pound among others.
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