BUS 626 Week 2 Responses

Question 1(Andrew)

The gross domestic product (GDP) measures the value of goods in a country's market with a time frame from businesses, government, and consumers.  This helps identify the performance in the market and progress with other countries (Gwartney et al., 2018), allowing for economic performance to be measured.

Some aspects to consider is how it is calculated and what is not to ensure the correct data is presented as intermediate good are not counted but only the goods and services produced. If intermediate stages of production were to be counted for the GDP, it would not represent the correct value of the final product; therefore, it should not be counted.

According to the official data from the World Bank, the United States' performance for GPD represents 18.55% of the world's economy. The graph below shows the current performance as there has been a slight increase from 2020, and one can assume 2020 to 2021 is slowly increasing as the pandemic continues to impact economic activity.

GDP is mentioned in business so often because it's part of the economic recovery, and with the ongoing pandemic, it is keeping track of the current health of the country's economy. The GDP will help leaders review to see if the economy is back on track or going into recession.

There are pros and cons for measuring our economy as it "breaks the economy into a single number and it's simplified for a better understanding" (Winck, 2019). Another point to consider is that the measurement has been around as a standard measure that may be challenging to change around the world. One of the limitations of the GPD is the exclusion of non-market transactions as its challenging to assign a value to the services provided. The real GDP measures an inflation-adjusted that reflects the value of the goods and services (Ganti, 2021) and is calculated by dividing nominal GDP over GDP deflator.

Question 2(Adriana)

GDP also known as the gross domestic product is used to measure the economic performance of any given country. (Gwartney et all., 2018) It measures the value of produced goods and services over a period of time. (Gwartney et all., 2018) A lot of what is measured by GDP is explained by its definition. (Gwartney et all., 2018) It measures goods and services produced, however, everything measured is counted just once. (Gwartney et all., 2018) A lot of the goods and services measured undergo production before they are accounted for. As products can be in different stages, not all of them are counted towards the GDP. For Example, sales that are in the intermediate stages of products are not counted as their value may change when they enter the final stage. (Gwartney et all., 2018) If goods were counted towards GDP in both stages, the value will be inaccurate. Additionally, financial transactions and income transfers are not accounted for as technically they are not “produced”. Such transactions include sales of stocks, bonds, and US securities. (Gwartney et all., 2018) As GDP measures domestic product, the only production inside the country is counted. When foreigners earn within the US borders, that is counted towards the US GDP. Additionally, only goods produced for a specific period of time are accounted for, usually a year. (Gwartney et all., 2018)

The US GDP for Q1 of 2021 was recorded at 22,061.503. Q4 of 2020 was at 21.493.731 and Q3 of 2020 was 21,170.252. (Gross Domestic Product,2021) The numbers have been rising slowly and they have been a topic of discussion due to the pandemic that is happening around the world. Real GDP is different as it is calculated differently. To determine the real GDP, one must take into account price changes to see whether the value of the GDP has gone up because more is being produced or just because of the change in prices. (Ganti, 2021) A tool called the price deflator is used to adjust GDP from nominal to constant pricing. (Ganti, 2021) To calculate the real GDP, we must divide the nominal GDP by the deflator. If the prices have increased by a certain percentage since last year, that number is used to determine the deflating number. Later on, the nominal GDP is divided by the deflating number and that is how the real GDP is produced. (Ganti, 2021)

It's important to measure GDP as it speaks to the size of the economy and overall economic performance. (Callen,n.d) The growth of the GPD is often time used to rate the health of the economy and if the numbers are rising it can be concluded that the economy is doing well. (Callen,n.d) If the GDP is growing steadily, that also means employment would likely increase and companies would hire more workers. (Callen,n.d)  The number takes into account a lot of factors and may not always be accurate. Since GDP is used to determine the health of the economy, it doesn’t really speak to the standard of living or well-being of a country (Callen,n.d). Some of the pros of measuring GDP are that it’s easy to collect, it’s a reliable indicator as most countries use the same formula, it’s a good indicator of whether economic policies work and it can be used as a way to compare one country to other ones. (Drakesmith ,2013) At the same time, it doesn’t take into consideration environmental impacts of economic policies, inequality and it does not show what the overall standard of living is. (Drakesmith ,2013) Additionally, the number could be misleading depending on the population of a country and since it does not take into account the “informal sector” activity. Overall, its best used for economic purposes, but it may not always be perfectly accurate. (Drakesmith ,2013)

Question 3 (Mandeep)

Unemployment is calculated by considering three conditions. First, an individual must have no job now (Gwartney et al., 2018). Second, the persons must be enthusiastically looking for employment within four weeks before the study and available for work except for sickness. Therefore, individuals who satisfy these conditions during a specific reference period are used to measure unemployment (Gwartney et al., 2018). It is important to identify individuals in the labor force. The U.S. BLS calculates unemployment using four methods: official estimates, employment office statistics, labor force sample surveys, and social insurance statistics (BLS, 2015).

Unemployment rate = (unemployed/ labor force) * 100%

When measuring unemployment, statisticians exclude persons who neither have jobs nor make exertions to get jobs (BLS, 2015).  The measurement also excludes people aged below 16 years and individuals waiting to be recalled to a job after being laid off (BLS, 2015). The persons who are neither unemployed nor employed are not counted in the labor force. People living in correctional institutions and those on active duty in the Armed Forces are excluded from the unemployment survey (BLS, 2015).

Unemployment numbers for the last three quarters in the United States

According to Statista (2021), the number of unemployed individuals was 9.5 million, representing a 5.9% unemployment rate. In March 2021 unemployment rate was 6.2%, while in December 2020 unemployment rate was 6.7% (Statista, 2021).

Why is unemployment mentioned in business news and used as a metric for the economy?

Unemployment is commonly mentioned in the business news and used as a critical metric for the economy because it reveals a country's health status in the labor market. Understanding unemployment helps economists know much about labor supply from each household and the demand for labor by businesses.  Additionally, the rate of unemployment can yield insights into the economic performance of the society, especially in the monetary policy concepts. According to the U.S. Bureau of Labor Statistics (BLS), unemployment figures help policymakers determine whether to aid unemployed individuals or decide on the measures to be taken to resolve the economic issue tied to joblessness (BLS, 2015).

The accuracy and relevancy of unemployment numbers

            From the accuracy point of view, unemployment numbers can, especially when there is a drop in the number of respondents during a reference period making the results less truthful. The relevancy perspective can be questionable if the fraction of persons with no jobs make less money than the unemployment rate since the survey omits some critical information from the population. Understanding this subject may require each person who does not have a job. Some problems associated with the unemployment approximation numbers include failure to capture the unemployment rate for a long period. It ignores the payment status of the job, and it does not cover the discouraged workforce, people may also be marginalized thus fail to look for jobs for the specified period for different reasons although they had searched for jobs in the previous years.

Impacts of phases of the business cycle on unemployment

Business cycles have four distinct phases: peak, recessions, trough, and expansion (Gwartney et al., 2018). During the peak business cycle, business activities reach a temporary maximum, making unemployment low. During a recession or contraction, there is a decline in the total output causing unemployment to increase (Gwartney et al., 2018). The trough phase comprises the bottom of the recession period, making unemployment at the highest level. Unemployment begins to fall during the business recovery or expansion phase.

Question 4 (Akira)

Unemployment has been a popular topic nowadays, especially in light of the COVID-19 pandemic. Unemployment is measured by multiplying jobless people by the number of people in the labor force who may be employed or multiplying the result by 100. Before looking at how the number is determined, it's necessary to understand what "unemployed" really means. An unemployed person does not have any form of job and is actively looking for work. Individuals who do not seek employment because they fear they will be unable to find the proper position are also excluded. Everyone is included in U-6 unemployment, including those who are marginally attached and part-time workers. The overall number of people in the labor force is divided by marginally attached, employed, or part-time to arrive at this figure. 

Individuals may experience periods of unemployment for a variety of reasons. Regardless of the cause of unemployment, the topic has been utilized as a barometer for our economy because it is critical to know how the labor force performs. Individual productivity is strongly tied to economic growth. Therefore variations in unemployment are frequently used to gauge the state of the economy. Unemployment rates fluctuate because they are directly connected to economic cycles. If the number of goods and services produced increases, the number of employees must increase as well. The unemployment figures may be questioned as a result of this. In addition, the natural rate of unemployment, which can be pretty unpredictable, is closely related. Unemployment rates are heavily influenced by the business cycle, as they may arise during recessions and reduce during periods of prosperity. The number of employees may vary depending on the stage of the economic process.

On the other hand, during a recession, there is less demand for work. Hence unemployment rates may rise. When the business cycle reaches recovery, unemployment begins to decline, and inflation begins to recover. Because data is acquired through surveys, unemployment figures may not always be relevant or accurate. The valid number of persons without work or earning insufficient wages is usually far more significant than disclosed to the public.