...rise in the GDP. The points Yf and Yf1 show that our economy goes past full employment which will create a shortage in labour, meaning wages will rise and we will be hit with inflation. The shaded blue area shows the inflationary gap caused by the sudden rise in aggregate demand. In the long term Australia’s employment will fall back to its natural rate of employment (Yf) and the price level will soar even higher. b) To have an output above potential GDP is to be outside of the production possibility curve. When our economy is at full employment potential GDP equals real GDP. But to have an output above potential GDP our unemployment rate must be below the NRU or full employment. With a huge demand in exports there will be a sudden rise in demand for labour, meaning lots more people will have jobs, this will cause the unemployment rate to drop below the natural rate of unemployment. This cannot be sustained over a long period of time though, as it will lead to skills shortages and bottlenecks in labour. It will cause wages to rise and lead to high inflation. c) Having more GDP is a good thing, but its needs to be achieved without going above potential GDP. This is achieved through economic growth and increasing the potential GDP. Being above potential GDP can be concerning because it is unsustainable over a long period of time. It causes price levels to rise, which leads to inflation. The short term effect of an increase in aggregate demand causes real GDP to be above...
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...which are; * Gross domestic product (GDP) * Real GDP * Nominal GDP * Unemployment rate * Inflation rate * Interest rate The second part will consist of three different economic activities in which I will describe how each affects the government, households, and businesses. The three activities include; purchasing of groceries, massive layoff of employees, and decrease in taxes. The first term is Gross domestic product (GDP). The GDP has been used as an indicator as to how well an economy is growing and the overall well-being of the economy at hand. The GDP can be used as evidence for classifying economies into different groups based on growth. The GDP reflects the total amount of both goods and services that were bought and sold and therefor can measure a country standard of living. When the GDP rises, the assumption is that the economy is growing, because the GDP is the total value of all products that are bought and sold. The second term is real gross domestic product (GDP). The real GDP is expressed in base-year prices meaning that this measure is inflation-adjusted and will reflect all of the goods and services that were bought and sold in a given year. The real gross domestic product can take into account the changes in price levels in order to produce a more accurate number. Nominal gross domestic product (GDP) is the gross domestic product figure before accounting for and adjusting for inflation. Nominal GDP figures can be somewhat misleading in...
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...AND CONTRAST THE MEASURES OF DEVELOPMENT WHICH ARE GDP, GNP, AND HDI? Firstly define the three key measures of development which are GDP, GNP, and HDI? Then I will compare and contrast the two economic approaches (GDP/GNP) and then compare and contrast these two to the human development approach (HDI) DEFINATIONS: GDP- The monitory value of goods and services produced by residents of a country (both citizens & non-citizens) in a given period of time usually a year. GDP can either be Real or Nominal GDP. GNP- This is the monitory value of goods and services produced by citizens of a country in a given period of time usually a year. GNP can either be Real or nominal. HDI-Since 1990 the UNDP has been publishing an annual report called the Human development report & the centre core of this report is the human development report (HDI). The HDI ranks countries according to their level of human development. It is for this reason therefore that the HDI focuses on three main variables & these include. Per capital income, life expectancy & educational attainment. SIMILARITIES 1. Both represent an attempt to measure the total economic output of a nation during a given period (usually one year) in sense they both measure development from an economic perspective 2. It measures both the size and direction of economic activity (growth, stagnation or contraction) – expansions and recessions are based on changes in GDP 3. Shows the relative strength of the nation’s...
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...as a gross domestic product that is also referred as the Gross Domestic Product. This product should have the rate for the value for many services, and choosing goods, which is produced within our economy during this particular price quoted in stated this year (Colander, 2010). When people produce goods usually earn the amount of income from businesses purchasing products because of the growth and the economy. This should mean certain type funds or amount of raise increases throughout each year. In this economy the actuality gross product is inflation, which adjusts some type measurement to give an estimated kind of value on any or good, and better, services that starts at the base year amount. The real product is usually considered as a constant amount. However, after the real gross product used a price index to create, which measurements should show exactly a higher amount of funds, which these level have raising pricing during each year and should take the time to...
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...Types of unemployment Seasonal: unemployment due to seasonal changes in employment or labor supply Frictional: brief periods of unemployment experienced by people moving between jobs or into the labor market. Structural: unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs Cyclical: unemployment attributable to a lack of job vacancies no economic growth = no jobs 5. Calculating a bank’s excess reserves Reserve ration=bank reserves/total deposits Required reserves=required reserve ratio X total deposits Excess Reserves=total reserves – required reserves 6. Differences in computing GNP and GDP GNP includes all outputs of a nation even if they are made outside the country. GDP only totals what is produce in the borders of a nation even if the company is foreign 7. Why does inflation affect production decision Price uncertainties during times of inflation can affect how a firm expands and invest. If prices are changing rapidly a firm can decide to hold off on investing in production till the prices stabilize again. 8. Who is responsible for buying and selling government securities The Federal Reserve System (the open market committee) 9. what does basic...
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...would help stabilize the economy in the short run by either increasing government spending or cutting taxes. By doing this the level of GDP is raised and unemployment is reduced creating more disposable income for consumers through increased unemployment compensation and other entitlement programs that aid households income levels, which in turn, brings the level of GDP to the level of full employment. Although these actions may help stabilize the economy timing of the actions to take place is important so that the fluctuations in the economy are not magnified, thus causing unnecessary stimulation to the economy resulting in greater output that 2. Describe how adjustments in wages and prices take the economy from the short-run equilibrium to the long-run equilibrium. During the short-run prices and wages do not respond to changes in the economy. Sticky prices or custom prices create periods of shortages or surplus due to the time it takes them to adjust. Sticky wages cause sticky prices and affect the economy’s ability to bring demand and supply into balance in the short run. When wages and prices are sticky it prevents the economy from operating at it natural level of employment and potential output. The current recession the economy is experiencing is an example of this because the unemployment rate is high and the wages are low meaning that the level of output exceeds the potential output creating more competition among firms and individuals with relation to labor and...
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...contributes more GDP-the production of an economy car or the production of a luxury car? Why? The luxury car because the luxury car cost more and therefore increases consumption and it reduces the net port because the car is imported 4. Many years ago Peggy paid $500 to put together a record collection. Today she sold her albums at a garage sale for $100. How does this sale affect GDP? The sale from Peggy selling her record collection at a yard sale is not included in GDP. GDP measures the value of production that takes place within a specific interval of time, usually a year or a quarter. 5. List the four components of GDP. Give an example of each. The four components of GDP are 1) consumption- Spending on Households on goods and services, with the exception of purchases of new housing. 2) Investment-the purchase of goods that will be used in the future to produce more goods and services. 3) Government Purchases-Spending on goods and services by local, state, and federal government 4) net exports- Spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports). 6. Why do economists use real GDP rather than nominal GDP to gauge economic well being? Because by evaluating current production using prices that are fixed at past levels, real GDP shows how the economy’s overall production of goods and services change over time. 8.Why is it desirable for a country to have a large GDP? Give an example...
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...consumer’s indifference curves; draw a curves for wine and cheese. Describe and explain four properties of these indifference curves? 5. What do you mean by political economy? How political economy different from behavioral economic? 6. Explain why an economy’s income must equal its expenditures? (fiscal policy) 7. Why do economists use real GDP rather than nominal GDP to gauge (test) economic well- being? 8. Why is it desirable for a country to have a large GDP? Give example of something that would raise GDP and yet be undesirable. 9. What do you think has a greater effect on the consumer price index: a 10 percent increase in the price of wheat or a 10 percent increase in the price of rice? Why? 10. Describe the three problems that make the consumer price index an imperfect measure of the cost of living? 11. Explain the meaning of nominal interest rate and real interest rate. How are they related? 12. What does the level of a nation’s GDP measure? What does the growth of GDP measure? Would you rather live in a nation with a high level of GDP and a low growth rate or in a nation with a low level of GDP and a high growth rate? 13. What is a government budget deficit? How does it affect interest rates, investment, and economic growth? 14. What is national saving? What is private saving? How are these three...
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...we think about GDP, it is important to determine the country’s output. When I say the country’s total output I mean everything produced by the people of the country, as well as all the companies within the country. Today I will be discussing to you all the recent history and expected future conditions of the American economy. In the current American economy, we must concentrate on the future. The current trends that are taking place in our economy are essential for determining the future of the U.S. economy. Some of the trends in the U.S. economy consist of business cost rising due to uncertainly. What this means is that as a result of the 2008 financial crisis, businesses have to change their way of doing business just to keep up. Another trend is companies hiring less full-time workers and more part-time, and temporary employee. The reason that companies do this is because they want to keep their overhead low, remain flexible in an unstable environment, and to keep from paying higher health care benefits. The U.S. economy is gradually declining in global economic power. According to current trends the U.S. will take part in another major crisis, but will not have an economic downfall. Current statistics about the U.S. economy indicates that the economy is growing at a fast rate. The moderate growth rate is about 2-3% which is good enough to create more jobs but it will create more inflation. Some of you may be wondering how the GDP is determined. The way GDP is determined...
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...Shylinda Graystreete Dr.Davis - Unit 2 Individual Project 29 July 2012 Expected U.S. GDP growth rate going forward The Gross Domestic Product (GDP) is a major factor that shows how the economy will either get better or worse. The GDP is how we can measure the spending and production of the U.S. The GDP is a total measurement usually calculated quarterly (Russell, 2012). These calculations show change to the economy even if products and services increased or decreased, According to Russell, (2012) regardless of changes in the purchasing power of the currency. There are many things that affect our economy such as international debt, increase in taxes, the effect to interest rates, the rise in unemployment, the poor failing real estate market, lack of investing, lack of spending by consumers, which is directly affected because of lack of employment. Some believe that the economy will eventually recover. This may be a slow process, however. Those in the business world believe this will most likely put inflation at a standstill. (TBQ, 2012). It is predicted that the GDP will continue to go up and down for years to come as the US tries to recover from the economic slump that it has found itself in unless congress and the president can pull us out. There are three different methods of determining GDP. The first one is estimating each industry’s gross output or production (Wells and Krugman, 2009). Second would be to measure income (Wells et al). Third would be expenditures...
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...To: Professor Hector Morales From: Pamela Proge 08/15/2011 Principles of Economics- Market and the Economy Explain how an increased federal budget deficit resulting from a recession can actually help stable an economy? Deficits and debt will rise to unparalleled levels in coming decades without major changes in federal budget policies, so legislators should set a goal of alleviating the debt as a share of gross domestic product over the next decade. Reducing deficits in the short term, however, would undercut the insubstantial economic recovery. Representatives should tolerate large deficits over the next several years in order to preserve a strong aggregate demand until the economy is back on its feet. Moreover, they can take contentment in the fact that momentary measures intended to aid recovery add very little to the long-term deficit problem. The increase in deficits for several years recedes in comparison to the size of the economy over the long run. As the economy recovers, however, politicians will need to demonstrate to the public and the lenders who finance our borrowing needs that they are prepared to move the budget toward a sustainable long-run path. President Obama’s initial budget proposal and the health reform packages that the House and Senate have passed represent first steps toward putting the federal budget on a sounder footing. Health reform is crucial because rising spending for health care is the major force driving the projected future growth in...
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...is the study of the economy as a whole. It considers the problems of inflation, unemployment, business cycles, and growth” (pg. 15). Now that a basic meaning has been provided, six key terms used in macroeconomics are detailed below. Key Terms Used in the World of Macroeconomics There exists many important nomenclatures used within the study and application of macroeconomics. This section explains six basic components that are essential in beginning to understand macroeconomics. Gross Domestic Product (GDP), Real GDP, Nominal GDP, Unemployment Rate, Inflation Rate, and Interest Rate are covered. Gross Domestic Product (GDP) The juggernaut known as Gross Domestic Product (GDP) refers to the financial appraisal relative to the total spectrum of completed goods and work performed inside a country, during a specified period of time (Investopedia, 2014). An annual computation is most common. The calculated GDP is a monetary picture of the total private consumption, public consumption, government outlays, investments, and the difference of exports minus imports (Investopedia, 2014). Real GDP Real GDP is a tool used by economists when measuring growth (Colander, 2010). Declared in expenditure of a given year, real GDP is the calculated total worth of product and services produced by an economy (Colander, 2010). This form of GDP can account...
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...The influence of Gross Domestic Investment per capita and Education Index on the GDP per capita. I. Introduction The purpose of this paper is to investigate the influence of the Education Level (the human capital), and investment in the economy per capita on the GDP per capita, that is on the welfare of citizens. These two factors has been chosen because the author of this paper believes that human capital from the social side and investment capital from the economical side plays both crucial and important role, leading to the real long-run economical growth. Human capital and economic growth have a strong relationship. Human capital affects economic growth and can help to develop an economy through the knowledge and skills of people. On the other hand money investment in the economy plays a material role in the development of countries and at the end in the welfare of people. Investment in the huge economic projects with real production value like food and machine industries are the final products which people are using in everyday life. Thus the economy`s path of production is coming from the ideas born in human brain to the real realized product. II. Method This research uses data from 23 observations (23 countries). The regression model consists of one dependent and two explanatory variables. The dependent variable is GDP per capita (constant 2005 US$). The per capita GDP has been chosen because it provides a more precise comparability of wealth of people of different...
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...Economic Definitions Worksheet 1. Gross Doemstic Product (GDP) GDP is a flow concept that measures final aggregate output per year for a given country. Even though GDP is reported quarterly; it is annualized, meaning it is reported as an estimate for the entire year. Final production includes the value of all goods and services produced by all companies withing that given country. 2. Real GDP Real GDP is the GDP adjusted for price changes caused by inflation or deflation. Because of inflation, GDP increases do not accurately reflect the true growth in a countries economy, Real GDP represents the GDP with the inflation rate taken into account. 3. Nominal GDP Nominal GDP is the market value of all final goods and services produced by a country, based on goods and services produced by a country, at their respective prices, unaccounted for inflation. 4. Unemployment Rate The unemployment rate is a measure of a countries unemployment and is calculated as a percentage by dividing the number of unemployed workers by all workers currently in the labor force. It is important to remember that people outside of the labor force are not included. When an economy reaches recession, usually the unemployment rate rises along with it. 5. Inflation Rate The Inflation rate is the rate that prices of goods and services increase and buying power...
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...One of the other reason that why MAS wants to use a more aggressive easing approach to slow the local dollar’s gain against its trading partners could be the need of guarding against the import inflation. Due to high demand, Singapore yearly imports around S$464 billion of goods and major of them are the fruits and vegetables, the weakening of Singapore dollar compared to US dollar makes the prices of most imported perishable items more expensive. The secondary reason could be coming up with fiscal expansionary policy measures to revive the growth mainly because the government’s spending on building infrastructure over the past years have shown positive effects. Lastly, the estimation of unexpectedly stronger advance Gross Domestic Product (GDP) growth in the third quarter could be the reason for slowing the pace of local dollar appreciation. Introduction Due to the scarcity of land and labor, Singapore is facing not enough manpower and at the same time underemployment and also imported inflation. Underemployment occurs when the employees are highly-skilled but working a low paying or low-skilled jobs. This situation will have an impact on the median monthly income of a full-time employee which as per reported on June 2015, it has rose by 4.7 per cent to S$3,949 at the same time, for the low-income workers, they also have an increment in their income (Channel...
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