The Gross Domestic Product

This paper will critically evaluate some macroeconomic terms as well as look at the effects different sectors of economy. 

Definition of Terms

Gross Domestic Product (GDP)

The Gross Domestic Product (GDP) is the monetary values of all complete services or goods that are manufactured in a specified period within a given country. The GDP entails aspects, such as consumption in the private or public sector, exports, and expenditures from the government. Imports, which occurs with defined territory is then subtracted from this figure to arrive at the expected GDP. It is calculated using the formulae:

GDP=C+G+I+NX (Blanchard, 2011)

Where

C is the entire consumption spending or all private consumptions;

G is amount of the government spending;

I is the amount of the entire spending incurred by businesses in a country;

NX is the sum of net exports. It is the total exports less total imports [NX = (Exports-imports)].

It is important to note that, in an economy, GDP helps the government and other stakeholders to gauge the overall living conditions of citizens in a particular country. Critics of GDP indicate that, by employing GDP as one of economic measure, this measure does not consider the contribution of underground economy among others, such as the failure to gauge material well being.

Real Gross Domestic Product

The Real GDP is the measure of value of the production within a given economy,   adjusted for the alterations in price, such as deflation and inflation. These adjustments change the money value measure, known as the nominal Gross Domestic, into an index that indicates quantities of entire output. The market values vary significantly depending on actual quantities of the services and goods produced as well as their corresponding prices.

Gross Domestic Product = (Real GDP*Price)

Where GDP indicates the nominal value of GDP and price is the price index of Gross Domestic Product. Generally, it is important to note that real GDP is one of the prime examples of distinctions between the real versus nominal values in a country (Dwivedi, 2001).

Unemployment Rate

Unemployment or joblessness occurs when the people in a certain country do not have jobs and they have sought for employment for last one month. Blanchard (2011) argues that unemployment rate is a measure of chances of unemployment. The figure is arrived at, after the number of unemployed persons divides the sum of people at present in the labour force of a given country. In the recent years, employment levels in developed countries, such as the U.S., U.K., Greece among others, has drastically reduced. This can be attributed to economic performances of these countries leading to collapse of major firms, while others are minimizing on employment levels to reduce their operational costs. In May 2011, it was estimated that more than 220 million people across the globe are out of work, which indicated an 87% rise from 2000 (Blanchard, 2011).

Inflation rate

Blanchard (2011) argues that, inflation rate is a vital economic force that constantly weighs on value of currency in a given nation. Inflation rate is equivalent to the decrease in purchasing power of money. Generally, inflation rate is employed in calculating real interest rate and real increase in the wages. The rate is mostly expressed in annualized terms, though the measurement periods are not annual. In different countries, such as the U.S. inflation rates are given in seasonal adjustment terms revolving in a systematic quarter-to-quarter variations. 

Interest rate

This rate in indicates interests that borrowers pay as a result of money borrowed from financial institutions. It can also be defined as amount charged that is expressed as percentages of the principal, by lender to borrowers for the use of the assets. In most cases, interest rates area noted on annul basis that is referred as the APR (Annual Percentage rate) (Dwivedi, 2001).

Circular Flow Diagram

A circular flow diagram indicates the ways in which participants in a given economy interacts as indicated by the figure below. 

The model show how an economy comprises of households and firms as the two main decision makers. Firms are the sellers, while households are the buyers.

Effects of the Current Economic Crises on the General Motors

Since the onset of global financial crises in 2008, General Motors has faced numerous challenges, both in the domestic and international markets. Between 2008 and 2010, the U.S. Government has offered more than US $30 in terms of bailout to prevent the company from closing shops. Further, the firm’s sales figures have been on a decline, resulting to job cuts among other austerity measures (Blanchard, 2011).

Economic Indicators Affecting the General Motors

There are various economic indicators affecting the internal and external environment as well as operational environment of General Motors, both in the U.S. and foreign markets. One of the indicators is the reduced demand of its products globally. This has affected the expansion rate of the business, thus minimizing on its short and long-term profitability levels. The other indicator affecting the General Motors is the higher taxation levels in most of the countries the firm operates. In countries like Sub-Saharan Africa, the taxation level has almost tripled within the last decade, thus drastically increasing its operational costs (Dwivedi, 2001).

From the above information, one can clearly see the need of careful evaluation of the macro-economic indicators for any given country and business. General Motors should strive in reducing its operating costs among other measures to remain profitable, both in the short and long term.