Chapter 15, Question 14
National income and output are used in economic studies to estimate the value of goods and services produced in an economy a snapshot of a country’s economic activity. A system of national account is employed to account for and record economic changes. National income is calculated using a variety of different methods. Some of the more popular methods include GDP (Gross Domestic Product), GNP (Gross National Product), NNP (Net National Product), NNI (Net National Income) PI (Personal Income) and PDI (Personal Disposable Income), among many others. National income statistics provide us with a numerical comparison of one country’s economic situation with another country’s economic situation. Easily economic growth of countries can become pared over time or at a particular snapshot in time. National income accounts also provide government agencies and private businesses with a tool for economic planning and budgeting. What’s more is this information provides a comparison with the standard of living from one country to another. Many issues arise with accounting for the true national income of any country. Certainly there is a concern for double-counting, for example the outputs of one business are the inputs of another business. If both are accounted for separately and added to the final numbers, the final numbers may be exacerbated by the inaccuracies of merging the accounts. Undoubtedly there are controls in place to avoid such in accuracies. Using these statistics as an indicated of standard of living can be erroneous as the result of multiple inaccuracies or conclusions drawing from the data. Some of the reasons for the inaccurate findings can include: * Unrecorded items missing from the calculations when measuring national output, examples:* Non-marketed items (ex: services from person to person, babysitting) * Underground economies (ex: “the black market”, or illegal items, drugs, unaccounted for) * GDP/GNP figures ignore the distribution of income* Problems in using National Income statistics to measure welfare since:* Production does not equal consumption* May be high costs of production* Costs and benefits to external parties to the production or consumption are ignored* Income statistics are recorded in monetary value; value of money is constantly changing; allowances for changes in the value of money must be made* GNP does not take into account the inputs used for outputs (as noted above); key measurement may be missed in the overall equation GNP does not consider other factors that affect quality of life, such as environment, security, clean-ups as the result of natural and man-made disasters.
Exercise 2: Chapter 16, Question 5
“Frictional unemployment is natural for our economy and, indeed, necessary and beneficial. People need time to search for new jobs, and employers need time to interview and evaluate potential new employees.” Simply stated, people that are between jobs, often by choice, are considered frictionally unemployed. One significant, and important reason that frictional unemployment is needed, is ensuring that the right person is hired for the right job, for the long-term employers just as much as employees want to feel happy and secure in their employment situation. Part of this security is recognizing that the employee fits well both with the company and the position to which they were hired. Hiring the wrong employee can cost a company large sums of money, just as the employee being in a position where they are not happy can cause frustration and poor morale. Frictional unemployment provides the opportunity for growth in the job market. Employees are able to search for jobs that best meet their requirements and perhaps allow for advancement. In just the same context employers are able to interview and find the right candidate for the job. If there were no frictional unemployment one would almost have to “trade” jobs with another person to move along to something...
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http://www.helium.com/items/1551000-frictional-unemployment-structural-unemployment-and-cyclical-unemployment (accessed August 7, 2010).Investopedia ULC. Investopedia, National Income Accounting. 2010.http://www.investopedia.com/terms/n/national_income_accounting.asp (accessed August 7, 2010).
Mark Thoma for CBS Money Watch. Will There Be a „New Normal‟ For Unemployment? November
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