Shortcomings of GDP - Copy

8/19/2019 Shortcomings of GDP - Copy

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• Nonmarket transactions

• Leisure

• Improved product quality

• The under ground economy

• GDP and environment

•

Composition and distribution of output• Per capita output

• Noneconomic sources of ellbeing


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!conomic Groth : economists defne and measure economic

1. An increase in real GDP occurring over some time period.

2. an increase in real GDP per capita occurring over some time

. "rithmetic of Groth# The mathematical approximation carule o ! that tells us the num"er o #ears re$uired to dou"le

."ppro$imate number of years required to double real Gannual percentage rate o growth.

.'ain (ources o Growth

1. )# increasing its input resources

2. )# increasing the productivit# o those resources

Productivity A measure o average output or real output per uinput.


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• The %usiness Cycle *ecurring increases anddecreases in the level o economic activit# over o #ears& consists o pea+, recession, trough, andrecover# phases.

• 'ecession a period o declining real GDP, accom"# lower real income and higher unemplo#ment

• Phases of %usiness Cycle

• Peak At pea+ "usiness activities reached a tem

maximum, econom# is at ull emplo#ment, levelGDP is at or ver# close to econom#-s capacit#.

• 'ecession a period o declining real GDP, accom"# lower real income and higher unemplo#ment

• Trough in the trough o the recession or depress

output and emplo#ment "ottom out/ at their lo


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• (nemployment The ailure to use all availa"resources to produce desired goods and services0 tthe econom# to ull# emplo#ed its la"our orce.

• Types of (nemployment)* +rictional (nemployment consists wait un

and search unemplo#ment or wor+er who searching or o"s or waiting to ta+e o"s in near u

,* -tructural unemployment. unemplo#ment whose s+ills are not demanded "# emplo#erssucient s+ills to o"tain emplo#ment or who camove to locations where o"s are availa"le.

/* Cyclical (nemployment A t#pe o unemplo#me

insucient total spending or insucient aggregat


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• +ull !mployment is something less than 1!!3 emplo#mela"our orce. 4conomists sa# that the econom# is ull# empit is experiencing onl# rictional and structural unemplo#meemplo#ment occurs when there is no c#clical unemplo#men

• Natural 'ate of (nemployment 0N'(1 when the num"eto o" see+ers in the econom#. At the 5*6 the econom# is producing its potential output.

• !conomic Cost of (nemployment# 6nemplo#ment that natural rate involves great economic and social costs.

•

GDP Gap and 2kun3s La indicates that or ever# 13 pothe actual unemplo#ment rate exceeds the natural rate, a Ga"out 23 occurs.

• !$ample in 2!17 unemplo#ment rate was .73 and 5atura6nemplo#ment was 83 so 1.73 a"ove the 5*6. 5ow multi9+un-s 2 indicates that 2!17-s GDP gap was 2.3

• GDP 2!17 ;


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• =ear Actual GDP Potential GDP GDP gap

• 2!!>;>!!! "illion ;>!1! "illion ?1! "illion

• 2!!8>>!! >8!! ?1!!

• 2!!8!!! 81!! ?1!!

• 2!!8>!! 88>! ?1>!

• 2!!@!!! 1!! ?1!!

• 2!1!>!! 8>! ?1>!

• 2!11!!! 1>! ?1>!

• 2!12>!! >!! !!!

• 2!1!! @!! ?2!!

• 2!1>1!!!! 1!2>! ?2>!


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• In4ation# ination is a rise in the general level o pridoes not mean that all prices are rising.

• 5easuring of in4ation the rate o ination or an#

Bsa# 2!17C is ound "# su"tracting the preceding #eaprice index rom that #ear-s B2!17C index, dividing "#preceding #ear-s index, and multipl#ing "# 1!! to exresult as a percentage.

• (uppose Price Inde$ or ,6)7 is )8, and or ,6)/

• 'ate of In4ation : 2!17?2!1


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• Types of In4ation

)* Demand


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i* +i$ed Income 'eceivers people whose incomes are fxed sincomes all when ination occurs.

ii* -avours 6nanticipated ination hurts savours. As prices rise, or purchasing power o an accumulation o savings deteriorate

iii* Creditors 6nanticipated ination harms creditors BlendersC.

.=ho is una?ected or helped by in4ation

i* +le$ible Income 'eceivers People who have exi"le incomescapes ination-s harm or even "eneft rom it.

ii* Debtors 6nanticipated ination "enefts de"tors B"orrowersC.. @yperin4ation A var# rapid rise in the price level0 an extreme

ination.

. history of hyperin4ation

Ater the second world war the prices in @ungary and Aapan B1 EerosC and B< ollowed "# 22 EerosC


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• The German in4ation o 1@2!s also was catastrophwent up >7! percent. Fn 1@2< situation worsen0 the price level rose 1,


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Shortcomings of GDP - Copy