Macroeconomics Essay Research Paper ECO 261

Macroeconomics Essay, Research Paper


1. The most common measure of the total output of the economy is the GDP ( Gross

Domestic Product). This is the total value of goods and services produced in an economy in a given year. This differs from GNP (Gross National Product) because GNP includes GDP plus income earned abroad. Real GDP is adjusts for changes in prices while nominal GDP is just a basic idea that measures current prices to establish GDP. Real GDP is the preferred method of production because it gives a more accurate account of changes in prices and real output .

The groups that purchase GDP include:

– consumption expenditures: purchases by consumers

– private investment expenditures: purchases by firms

– government purchases: federal, state and local government purchases

– net exports : purchases by foreign sector, or domestic exports minus domestic imports. I believe that the government expenditure is most significant because it has the most overall influence on the condition of the economy.

2. Economic growth occurs through two mechanisms : capital deepening and technological progress. Capital deepening is an increase in the stock of capital per worker . Technological progress is an increase in output without an increase in capital or labor. Several factors that are necessary to create and promote economic growth are spending on research and development, creative destruction, the scale of the market, induced inventions, and the accumulation of knowledge. I believe that investments in human capital are the most important part in encouraging growth in the US. This is because with a more educated work force and/or more skilled workers, the overall level of income and technological innovation would become more apparent, raising the overall level of economic growth.

5. The difference between cyclical, frictional and structural unemployment is as follows :

– cyclical unemployment : accompanies fluctuations in real GDP ie. worker gets layed off from an assembly position at a factory

– frictional unemployment : associated with the normal workings of the economy, such as searching for jobs ie. roofer looking for construction job

– structural unemployment : results from the mismatch of skills and jobs ie. person with a PhD. working as a waiter

The most harmful type of unemployment would be cyclical unemployment. This results in fewer jobs , fewer workers with jobs and rising unemployment. Retraining of workers and new fields of industry may be a way to solve this problem.

The shortcomings of our current approach to calculating the unemployment rate are being that it is difficult to distinguish between the workers that are actively seeking employment and discouraged workers who give up on seeking employment. Also not accounted for are people that are underemployed. In addition to this part time employees are counted as being employed regardless of how much they work.

7. The current GDP calculations do not adequately measure the value of our ?volunteer? efforts, the quality of our life, underground activities, our environment or rapid changes in technology. We should try to account for these factors to more accurately calculate an actual figure as to what GDP is. Examples of this are ?working under the table? which may overstate the unemployment rate, pollution and depletion of resources, composition of output, and market transactions (?volunteer?

actions, crime etc.). All dilute a true reading of GDP. We should revise our current way of calculation by perhaps figuring in ?discouraged workers? or accounting for minerals or air quality. For example : waiters or waitresses may not claim all of their tips each time they work or flea market vendors mat take ?under the table ? cash. It is estimated that 500 billion goes untaxed or 7% of the GDP. A revision of current methodology is a challenging problem that todays economists face that will go on for some time.

8. The Bureau of Labor Statistics ( is the principal fact finding agency for the Federal Government in the field of labor economics and statistics. The BLS is independent national statistical agency that collects, processes, and analyzes statistical data to the American public, congress, state, local and federal agencies, local business, governments and labor. It also serves as a statistical resource to the Department of Labor. These groups may be interested in some of the data offered such as : employment rates, prices and living conditions, average annual pay of employees, economic ranking of cities , compensation and working conditions, productivity and technology, employment projections, regional and state employment and unemployment statistics. Also economic indicators such as the Consumer Price Index and Employment Cost Index. This due to the fact with the information provided predictions about economic success in certain areas or depression in others may be made. Current social and economic conditions are discussed as well.



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