The bottom line for GDP is that it is a tool used to see how whether a particular economy is doing poorly or well. There are two types of GDP; Real GDP and Nominal GDP. Both still measure the value of goods and services, but the difference is that in Real GDP, the effects of price changes are excluded (Rittenberg, et al, 2009). Basically, Real GDP is adjusted to account for inflation. There are some limitations in using Real GDP.
Meaning that the number of people working is undetected. The downside to this is the macro economic policies are likely to be too expansionary and social policy too excessive. The second issue is these underground economy wages are escaping taxation which causes a loss in tax revenue. Lastly it shows that the citizens and the government have an unhealthy relationship. The taxpayers are not happy with the public services from the government and seek help with out having to pay taxes.
But its deeper effect is to challenge the golden rule of capitalism, to pervert the relation between rich and poor, and to depict the system as “a zero-sum game” in which every gain for someone implies a loss for someone else, and wealth is seen once again to create poverty” (Gilder, 10). Gilder states the statistical distributions can misrepresent the economy throughout the year, but it does not show the changes that occur with in the year and how it weighs on their distribution
In contrast, Supply side economists believe that unemployment is caused by the supply side of the economy not functioning properly. Extract E states how the recent strong performance of our labour market has “to some extent, been based on a foundation of macro economic stability“. This macroeconomic stability has been reached by using “appropriate fiscal and monetary policies to manage aggregate demand“. The fall in unemployment from 7.1% to 4.7% from 1997 to 2006 shown in Extract D is therefore evidence that managing aggregate demand can contribute to an effective reduction in unemployment. Managing aggregate demand(eg) can be self-financing because when the increase in aggregate demand causes an increase in employment, it means that fewer people would be on unemployment benefits.
In theory, governments need not to intervene, as it is argued that freely floating exchange rates will automatically move to restore equilibrium on the current balance of the balance of payments. For example, if the current balance of the balance of payments in the UK was in a deficit, meaning that the value of imports exceeds the value of exports in that particular period, the demand for sterling pound will fall and the value of sterling demand for foreign currencies will rise. The external value of the pound would fall, making UK exports more price competitive and UK imports less competitive in the international market. Export sales therefore rise and import purchases fall, correcting the current balance deficit. The opposite occurs for a balance of payments surplus.
One of the functions of money is as a store of value. How does inflation affect money's ability to store value? (3-6 sentences. 2.0 points) Inflation can decrease the value of money over time. Inflation is when the value of money goes down, so that you can’t get as much for your money as you could in the past.
Whereas, the capital output ratio ‘K’ is negatively related to the growth rate. Since the capital output ratio is fixed in the assumptions, this model focuses mainly on the saving rate as only one factor in raising the growth rate. “The higher the level of saving and investment, the higher level of growth” became the conclusion. The Harrod-Domar Equation states that the rate of GDP is determined jointly by the national savings ratio (S) and the national capital output ratio (K) Therefore: 1) The growth rate of national income is directly (positively) related to the savings ratio, i.e., the more an economy is able to save – and therefore invest – out of a given GDP, the greater will be the growth of that GDP. 2) The growth rate of national income is indirectly (negatively) related to the economy’s capital-output ratio, i.e., the higher is k, the lower will be the rate of GDP growth.
In other words, the peaks and troughs in a leading variable occur before the corresponding peaks and troughs in the business cycle. A lagging variable is one whose peaks are troughs tend to occur later than the corresponding peaks and troughs in the business cycle. Unemployment is a key-lagging variable, as the economy is doing badly or companies are expecting a downturn in the economy, the unemployment rate increases accordingly. Firm tend not to hire workers until they know that the economy has picked up and that this recovery is stable and that they are fairly sure that it will be an ongoing thing. So if the economy picks up firms will tend to lag a little bit in hiring workers at least permanent workers.
2.2 The budget has not been accurate enough. This has caused some budgets to be over compensated for and others under compensated for leaving us with a problem of how to distribute the remaining money from budgets or raise additional capital to fund the departments which the budget hasn’t covered. 2.3 The budget has been tampered with as the year has gone on. This has caused upset and inaccuracy as money has been shifted, added and taken from different departments, leaving some departments short or over paid for without explanation why. 3.0 Recommendations 3.1 To reduce the exceeding of budgets, I recommend that more time is spent to see where money can be saved without risking health and safety.