oGenerally, the more goods and services people have, the better off they areoGDP fails to measure what?oHousehold production and the underground economyoWhy is GDP still an imperfect measure of well-being?oGDP is not adjusted for crime/social problems, value of leisure isn’t included, andnot adjusted for pollution and doesn’t account for unequal income distribution.oIf Americans still worked 60-hourweeks, as they did in 1890,oGDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher.oWhy does inflation make Nominal GDP a poor measure of the increase of total production from one year to the next?oWhen nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.oHow does Real GDP deal with the problem inflation causes with nominal GDP?oBy keeping prices constant, we know that changes in real GDP represents changes in thequantity of output produced.oReal GDP seperates price changes from quantity changesoReal GDP uses the prices of goods and services in the base year to calculate the value of goods in all other yearsoGDP deflator calculated?oGDP deflator = NGDP/RGDP * 100o“If NGDP is less than RDGP, then the price level must have fallen during the year”oDisagree. NGDP is less than RDGP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause NGDP to be less than RDGP.o“Whenever RDGP declines, then NGDP must also decline”oDisagree. RGDP falls if output falls. NGDP can increase if output falls and prices rise.o“If a recession is so severe that the price levels declines, then we know that both RDGP and NGDP will fall”oAgree. If both output and prices are falling, then both RGDP and NGDP will fall.o“If RGDP stayed the same while NGDP declined between 2008 and 2009, then the GDP deflator must have also declined.”oAgree. If NGDP declined between 2008 and 2009, then the GDP deflator must have also declined.oInflation rate: (GDP deflator year 2-GDP deflator year 1/GDP deflator year 1) * 100oOver time, prices change relative to each other. To take this change into account, the BEAcalculates:oReal GDP using chain weights.
HOMEWORK #2Unemployment rate calculated by:oUR= unemployed/ labor force *100Conditions to be counted as unemployedoNot worked in the week previous to the survey weekoHad actively looked for work at some time during the previous four weeksoWere available for work in the week previous to the survey weekLabor force participation rate calculated by:oLabor Force/ Working-age population *100The employment-population ratio measures the:oPercentage of the working age population that is employedWhen an unemployed person drops out the labor force, the unemployment rate:oUnderstates the true degree of joblessness in the economyWhen an unemployed person drops out the labor force, it:oDoes not affect the employment-population ratioThe household survey interviews households and collects data that is used to measure the unemployment rate whereas the establishment survey interviews businesses and measuresthe total employment in the economy.
- Fall '10