Limitations of the way we measure gdp
Course:- Macroeconomics
Reference No.:- EM13840053

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Visit the Bureau of Labor Statistics website, http://www.bls.gov/, and find current information about the consumer price index and rate of inflation or the rate of unemployment. What do these measurements tell you about the current state of the economy?

Consumers may be strongly affected by what happens to prices in many markets, such as the market for food, gasoline, health care, or education. Think about a specific market in which the price has recently changed. What are some possible reasons for the price change? What are some of the consequences for consumers? Should government take any action to stabilize the price, in your opinion?

Once you have mastered the supply and demand model, you should find it very interesting to apply the model to help make sense of real-world market trends. As an example, the model indicates that certain events cause demand to shift, such as increase in the number of consumers. So I predict that because more consumers in China are now able to afford cars, there will be a significant increase in the demand for gas globally. The model also demonstrates that when demand shifts to the right, equilibrium price and quantity both rise. So increased consumption of gasoline by Chinese consumers leads to higher prices for all of us. Do you want to apply this model to another real-world situation?

There has been a lot of discussion about the minimum wage in the news lately. The textbook provides the standard economic analysis of the minimum wage as a price floor. The economic model concludes that raising the minimum wage helps some workers while hurting others. Do you agree with this conclusion? What are your views on this topic?

Taxes on different goods and services affect the prices we as consumers pay. Sometimes this is not the intent, but is an unfortunate consequence of taxation. In other cases, the main purpose of the tax is to raise the price of the product! Why? Generally because the product is associated with "sin" as with alcohol or tobacco. What do you think about government using taxation to try and encourage people to reduce their consumption of products like alcohol and tobacco? Should this approach also be applied to foods that are unhealthy, or maybe soda? Note that economic theory does not provide a justification for sin taxes, the argument is really a moral argument and is therefore very subjective (no right or wrong answer).

Very simply, if you advocate a laissez-faire approach, meaning you think government should leave the economy alone and let markets do their thing, then you lean more in the direction of the Classical school of thought. If you believe that government has a responsibility to step in and steer the economy away from another Great Depression, then you are closer to the Keynesian way of thinking. You will learn more about these two approaches in this chapter, but what is your initial instinct: Classical or Keynesian (or somewhere in between)?

Do you think GDP is a good way to measure how well off a society is? They say money can't buy happiness, but is a society likely to be happier if people have nicer homes, better cars, more entertainment and health care and other services? Of course, there's more to life than material goods. What are some other limitations of the way we measure GDP? What about the value of non-market activities? Is it important that when you change the oil in your car, nothing happens to GDP, but when you pay someone at a repair shop to change your oil, GDP goes up?

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