Question

Can someone please give me a 6-7 page on this addresses the following. 1a. Why is there unemployment even when the economy is at "full employment"? What are some "costs of unemployment? b. Is the CPI a biased measure of the inflation rate? Explain your answer. c. Explain how some government tax revenue and spending can depend on the state of the economy. d. Explain some limitations of using GDP as an indicator of standard of living (be sure to do some research on your own to find any alternative measures).

Answer 1

1a) Full employment output is the output that the economy is producing when all its resources are used efficiently.Natural rate of unemployment is the unemployment which is found in the economy when the economy is producing the full employment output.During recession the present unemployment rate is higher than the natural rate.At the time of expansion the present unemployment rate is less than the natural rate.

The economic and social cost of unemployment are Personal cost of unemployed like less income for unemployed , lower on-the-job training etc,cost to government ie less tax revenue and high spending by the government,cost to society like social problems,lost GDP,alienation etc.use of resources not efficient,and loss of human capital.

b) CPI is the fixed weight price index.As a result prediction of the effect of price increase on the consumer's budget is not possible. Inflation is overstated by CPI due to biases like Quality bias namely technological advancement increases the quality as well as life of the product.

c)When the economy expands the income of the people go up.Employment of the people increases.As a result the size of the tax base increases.When revenue increases with tax spending also increases.

d)Gross domestic product and the concepts related to GDP like real GDP, per capita GDP,and per capita real GDP are not proper measures of the country's standard of living.GDP only includes goods and services produced and sold in the legal market but there are many other productive activities for which market transactions are absent. Again GDP does not measure quality of life.Leisure,quality of people's health are not included in calculation of output.Thus GDP does not state how output contributes to the life of people.