Identify economic factors that affect the real GDP, the unemployment rate, the inflation rate, and a key interest rate. How do you predict the economy will perform in the next two years given the current state of two of the economic factors you identified? How might your organization be affected by these changes?
World’s economy today has become very volatile with the passage of time. It therefore is a function of a number of monetary and non monetary factors, which have a direct or indirect impact. Factors affecting the real GDP, inflation rate, unemployment rate and the key interest rate include demand and supply, human capital, confidence of the consumer, foreign exchange rate etc. All these factors are interrelated to one other and collectively affect the economy. For instance in a prosperous economy, unemployment rate is very low which increases the demand for goods due to higher purchasing power and boosted confidence of the consumer. This increased demand leads to increased supply which increases the production and ultimately GDP is increased. Subsequently the inflation rate and real interest rates also remain stable. Any disturbance in any of these factors disturbs the whole cycle and adverse affects are observed.
Nowadays the economy is going through post recession period, it is still recovering from the depression of 2007-09. In the coming two years the economy will start regaining the pace towards stability but it still has to go a long way. Alike others our organization will also suffer the impacts and will have to take strategic moves in order to get in line. Unfortunately we will have to increase the prices due to the tax hike and to recover from the previous loss.
What is the difference between real and nominal GDP? Does GDP accurately reflect the nation's welfare? Why or why not? How can a country's GDP be manipulated? In your opinion, is the U.S. GDP being manipulated?
The GDP that is calculated on the bases of baseline prices is the Real GDP, whereas the one calculated on the bases of current market rates is known as the Nominal GDP. Real GDP is used by the economists in order to measure the growth rate whenever changes occur. It is known to be the market value of the final products and services in an economy. The Nominal GDP however is adjusted price covering the inflation. GDP does not reflects economy’s or nation’s welfare accurately as it does not take into account the activities in the secondary market like second hand purchasing, growing own food, bartering goods and services and so on.
A country's GDP can easily be manipulated via the calculation of that country’s purchasing power parity. Exchange rates can also be used to serve the purpose. The U.S GDP is being manipulated in my opinion as the economies with higher debts do have tempered GDP. In 2012 Craig R. Smith and Lowell Ponte in a discussion said that the government figures are being manipulated in order to present a better look of the economy to support president’s re-election. It was told that the escalating figures are a good sign, but the situation is vice versa. U.S economy had to face severe shocks in the past recession yet the current high figures do not translate the actual situation of the nation’s economy.
DQ2. What are the different types of unemployment? How do they affect the economy in terms of growth, labor force, and price of labor? Cite specific examples to support your response.
Many economists define a number of types of unemployment, prior to defining the types one must know the prerequisites to fall in the definition of unemployment. Firstly an unemployed person is the one who isn’t working, not even temporary or part-time. Secondly he is available to work. And lastly the jobless must be actively looking for work for four weeks, to be counted as unemployed.
Major types of unemployment are Frictional, Structural and Cyclical. Frictional unemployment is when employees quit their old jobs and haven't found new ones yet. It does not affect the economy as a whole rather it is for one person or for specific people who fall in this category. Structural unemployment occurs majorly due to the structure of the economy where a mismatch is formed between the skills that the workers posses and the skills required by the employers. As for example, manpower is fired by an industry as the robots replace them. This type of unemployment surely lowers the cost of labor due to increased number of workers available to work with relatively lesser job opportunities. The only type that can be controlled and managed is the cyclic unemployment. It's caused only due to the contraction phase of a business cycle. As in recession demand for goods and services decline the businesses are forced to lay off significant numbers of workers in order to cut the cost. All other types are natural.
References
Mike Shedlock, “GDP Miss Far Bigger Than Announced; Real GDP is 0% Using More Reasonable Deflator,” TownHall.com, April 28, 2012. Retrieved from http://finance.townhall.com/columnists/mikeshedlock/2012/04/28/gdp_miss_far_bigger_t han_announced_real_gdp_is_0_using_more_reasonable_deflator/page/full/
Brett Chulu (2012) Sustainable economy.
Lessons from the Jubilee economic cycle. Retrieved from.
http://www.theindependent.co.zw/2012/07/06/sustainable-economy-lessons-from-the- jubilee economic-cycle/
“The Growth Deficit: The Slowest Recovery Plods Along,” Wall Street Journal, April 27, 2012. Retrieved from. http://online.wsj.com/article/SB10001424052702304811304577370134158171146.html? mod=googlenews_wsj
