Gm545 Project 2

Business Economics GM545

Project Part 2

Exercise 1: Chapter 15, Question 14 (textbook page 424)

National income and output are used in economic studies to estimate the value of goods and services produced in an economy—a snapshot of a country’s economic activity. A system of national accounts is employed to account for and record economic changes.
National income is calculated using a variety of different methods. Some of the more popular methods include GDP (Gross Domestic Product), GNP (Gross National Product), NNP (Net National Product), NNI (Net National Income) PI (Personal Income) and PDI (Personal Disposable Income), among many others. [(Investopedia ULC 2010)]
National income statistics provide us with a numerical comparison of one country’s economic situation with another country’s economic situation. Easily economic growth of countries can be compared over time or at a particular snapshot in time. National income accounts also provide government agencies and private businesses with a tool for economic planning and budgeting. What’s more is this information provides a comparison with the standard of living from one country to another.
Many issues arise with accounting for the true national income of any country. Certainly there is a concern for double-counting, for example the outputs of one business are the inputs of another business. If both are accounted for separately and added to the final numbers, the final numbers may be exacerbated by the inaccuracies of merging the accounts. Undoubtedly there are controls in place to avoid such inaccuracies.
Using these statistics as an indicated of standard of living can be erroneous as the result of multiple inaccuracies or conclusions drawing from the data. Some of the reasons for the inaccurate findings can include: [(Ott 2010)]
* Unrecorded items missing from the calculations when measuring national output, examples:
* Non-marketed items (ex: services from person to person, babysitting)
* Underground economies (ex: “the black market”, or illegal items, drugs, unaccounted for)
* GDP/GNP figures ignore the distribution of income
* Problems in using National Income statistics to measure welfare since:
* Production does not equal consumption
* May be high costs of production
* Costs and benefits to external parties to the production or consumption are ignored
Exercise 2: Chapter 16, Question 5 (textbook page 450)
“Frictional unemployment is natural for our economy and, indeed, necessary and beneficial. People need time to search for new jobs, and employers need time to interview and evaluate potential new employees.” [(Stone 2008)] Simply stated, people that are between jobs, often by choice, are considered frictionally unemployed.
One significant, and important reason that frictional unemployment is needed, is ensuring that the right person is hired for the right job, for the long-term—employers just as much as employees want to feel happy and secure in their employment situation. Part of this security is recognizing that the employee fits well both with the company and the position to which they were hired. Hiring the wrong employee can cost a company large sums of money, just as the employee being in a position where they are not happy can cause frustration and poor morale.
Frictional unemployment provides the opportunity for growth in the job market. Employees are able to search for jobs that best meet their requirements and perhaps allow for advancement. In just the same context employers are able to interview and find the right candidate for the job. If there were no frictional unemployment one would almost have to “trade” jobs with another person to move along to something better or something the fits with their needs.
One major concern for the level of frictional unemployment is the government benefits provided to those individuals actively searching for a new job. While they did have a job and are seeking new employment they may or may not receive government stipends to cover living expenses. Depending on the level of support and the length of time provided to the person for such a program, their motivation to take a new job may be slightly skewed since they are already receiving some compensation. These government programs can cause the frictional unemployment rate to be higher in some cases.
The level of frictional unemployment can provide for a sampling of how the economy is performing. Those individuals seeking new employment opportunities are typically higher with better economies. Workers are more comfortable searching and seeking new jobs when they feel as though the jobs are available and companies are hiring. With the current state of the economy, 2009-2010, we’ve experienced continuing fluctuations in unemployment (generally increasing), employees are not willing to take a chance and leave position, even if they are unhappy or ready for new challenges. [(Mark Thomas for CBS Money Watch 2009)]
Exercise 3: Chapter 16, Question 11 (textbook page 450)
Unemployment is defined as when a person is actively seeking a job (willing) and is also available to work (able) and cannot find employment. Studying the economy from a macroeconomic view there are three types of unemployment: Structural, Cyclical and Frictional. Each impacts the economy and its citizens in different ways. Each respective type of unemployment is examined and further explored below.
“Unemployment caused by changes in the structure of consumer demands or technology” is considered structural unemployment. “It means that demand for some products declines and the skills of this industry’s workers often become obsolete as well. This results in an extended bout of unemployment while new skills are developed.” [(Stone 2008)]
Structural unemployment is often referred to as the most devastating type of unemployment. This devastation is the result of a shift in need for a particular product or service. For example, when typewriters were replaced with more functional personal computers in both the home and in the office, the whole industry changed. The manufacturers no longer needed employees to produce the product, and of course those that were typists working in the industry had a new skill to learn, word processing on more sophisticated devices. These individuals provided a skill that was no longer needed. Those individuals’ having to learn these new desired skills takes time. Essentially there is a “mismatch” between the skills desired by employers and the available skill sets of workers. [(Helium, Inc. 2010)]
Government programs to reduce structural unemployment may involve reimbursements or reduced tuition for employees seeking additional training to learn new skills. Continuing education programs provide displaced employees with the new required skill sets desired by businesses encountering changes to their market.
Cyclical unemployment is what “results from changes in the business cycle; where public policymakers can have their greatest impact by keeping the economy on a steady, low-inflationary, solid growth path”. [(Stone 2008)] Cyclical unemployment is often the result of a recession. Companies tighten-up spending and reduce productions during times of economic slowdown. As a result, the workers are typically the first to be cut from the overhead costs.

Works Cited
CATOInstitute. Individual Liberty, FreeMarkets, and Peace. 2010. http://www.cato.org/pubs/pas/pa004.html (accessed August 7, 2010).

Helium, Inc. Macroeconomics: The three types of unemployment. August 2010, 2010. http://www.helium.com/items/1551000-frictional-unemployment-structural-unemployment-and-cyclical-unemployment (accessed August 7, 2010).

Investopedia ULC. Investopedia, National Income Accounting. 2010. http://www.investopedia.com/terms/n/national_income_accounting.asp

Mark Thoma for CBS Money Watch. Will There Be a ‘New Normal’ For Unemployment? November 11, 2009. http://moneywatch.bnet.com/economic-news/blog/maximum-utility/how-much-is-full-employment/128/

Ott, Mack. Econlib: The Concise Encyclopedia of Economics: National Income Accounts. 2010. http://www.econlib.org/library/Enc/NationalIncomeAccounts.html

Stone, Gerald W. Core Economics. New York: Worth Publishers, 2008.

Cited: CATOInstitute. Individual Liberty, FreeMarkets, and Peace. 2010. http://www.cato.org/pubs/pas/pa004.html (accessed August 7, 2010). Helium, Inc. Macroeconomics: The three types of unemployment. August 2010, 2010. http://www.helium.com/items/1551000-frictional-unemployment-structural-unemployment-and-cyclical-unemployment (accessed August 7, 2010). Investopedia ULC. Investopedia, National Income Accounting. 2010. http://www.investopedia.com/terms/n/national_income_accounting.asp Mark Thoma for CBS Money Watch. Will There Be a ‘New Normal’ For Unemployment? November 11, 2009. http://moneywatch.bnet.com/economic-news/blog/maximum-utility/how-much-is-full-employment/128/ Ott, Mack. Econlib: The Concise Encyclopedia of Economics: National Income Accounts. 2010. http://www.econlib.org/library/Enc/NationalIncomeAccounts.html Stone, Gerald W. Core Economics. New York: Worth Publishers, 2008.