1
(a)
Gross domestic product of a commodity is its value in relation to the market price of that particular country, and it also indicated the living standards of that particular nation. The value of the gross domestic product can, however, is calculated using different formulae and they are; using the income, expenditure and production methods.
GDP=C+G+I+NX. C is the consumed product or the amount spent by the consumer; G is the total value spent by the government, I, the total of all the business expenditures of the county and NX is the net profits of that nation got from getting the difference between the exports and the imports.
GDP=1000+500+280+90+ (300-180) = $1990
(b) In the following cases is the GDP affected or not?
- When you get a used item like a book, the GDP of the country is not affected because it monetary value was already taken into account when the book was bought from the bookshop when it was new.
- when you buy a new umbrella the GDP of that country is affected as there is some imposed tax on that umbrella that will return to the governments monetary reserves hence affecting the GDP. This will be the final product that the customer will pay for.
- When a tourist from another country visits your country and receives a service like getting their hair done in a salon, the amount that she has to pay for the received service will affect the GDP. This is due to the fact that the tourist came with foreign currency into the country, with the foreign currency she will have to by the local currency needed to pay for the services that she will need.
- When Oklahoma cleans after a devastating tornado will not affect the GDP of the country because the tornado is an act of God and nothing could have been done to stop it from happening and therefore expenses incurred from such events are not factored in the GDP.
- When a pension payment is given to a military person who is out of service, it affects the GDP of the involved country because pension payments fall in the category of the total expenses that the government faces in a day to day basis and such payments eventually affect the GDP (Brezina, 2012).
2. Effects of inflation and deflation.
Why some people gain from inflation
There are a specific group of people in the society, these people consider themselves as the powerful and the almighty and they can do what they want. Some include the cartels that have the power to influence the inflation rates of the economy. An example is, these people may have taken loans of huge amounts of money but since they are corrupts and do not want to pay the money to completion, so they will affect the interest rates by targeting inflation. They do this so that the interest rate will become lower than the initial rate that they had used when getting the loaned money and therefore, they end up paying less money than they had been loaned once calculations are made with the new interest rates. Other people who gain from inflation are those who export any finished products. They benefit the most when they sell their products with a week currency and they will make more money unlike the time when the inflation rate is low, and their currency is strong in comparison the dollar (Hall, 2009).
Why some people gain from deflation
Technology enthusiast have gained during times of deflations due to the reason that manufacturers are competing on who releases the most advanced technological innovation to the market first, and they do this at very low prices due to the very high level of competition and therefore the people who benefit most from such levels of deflation are the consumer, proving that not all levels of deflation are bad.
Why some people lose from inflation
The people affected most by inflation are the poor and the reason for this is that a byproduct of inflation is an increase in price of goods and services. This will make most of the people forgo some commodities so that they can afford the most important goods and services they need. Inflation also causes the depreciation of the currency and this directly affects the people who earn their living from imports. They will earn low profits because they had bought the same commodities at a higher price than usual, and if they would take the chance to increase the price of their goods, they face the risk of making very little or no sales.
Why some people lose from deflation
Deflation has a negative effect on stock and large scale investors are greatly affected during periods of deflation. This is the case because they will be forced to sell any stock shares they have a lower price than they had initially bought them leading to huge amounts of losses. The government is always against deflation because deflation causes people to spend less and one this happens the revenue that the government collects is also small making it not have the ability to fund the major projects that are running, and it will also have problems in clearing debts from another nation.
3.
(a) Natural rate of unemployment- this is a concept formulated in the 1960s by economists. it was based on the idea that individual can be unemployed due to reasons that are beyond their control, however, hard they try to get employed.
Factors causing natural rate of unemployment
The labor provided and the labor needed is equal and the laborers currently out of employment have no choice but to wait for an opportunity to open up. Another factor is the difference between the wage to be received after the service offered and the availability of people willing and able to complete the task (Ostrup, 2000).
(b) Structural unemployment- this is the form of unemployment where the labor given is more than the labor needed, and this may be due to over employing of the needed people. The number of people requiring the job is much greater than the job needed to be done and therefore those who will be given the job are the best qualified while those who remain unemployed do not have the necessary skills to perform the tasks adequately.
Why structural unemployment can arise in an economy
It can arise in an economy due to the reason that every person needs an income generation activity, and they will opt to do anything even if they are not well qualified for the task. However, employers will not risk employing such groups of people because they will cause the organization not to compete effectively in the market leading to its failure(Werding, 2006).
Work cited
Brezina, C. (2012). Understanding the gross domestic product and the gross national product. New York, NY: Rosen Pub.
Hall, R. E. (1982). Inflation. Chicago: University of Chicago Press.
Østrup, F. (2000). Money and the natural rate of unemployment. New York: Cambridge University Press.
Werding, M. (2006). Structural unemployment in western Europe: Reasons and remedies. Cambridge: MIT Press.
