Economic Indicators and Their Implications: Real GDP, Unemployment, Inflation, and Standard of Living

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Economic Indicators and Their Implications: Real GDP,Unemployment, Inflation, and Standard of Living1. Suppose that in 2013, the economy produced 10 shirts at $20 each and 5hamburgers at $5 each. In 2014, the economy produced 15 shirts at $21 eachand 10 hamburgers at $6 each. What is the value of real GDP produced in 2014using 2013 as the base year? What would be the growth in real GDP?Suppose that in 2013, the economy produced 10 shirts at $20 each and 5 hamburgers at $5each. In 2014, the economy produced 15 shirts at $21 each and 10 hamburgers at $6 each.What is the value of real GDP produced in 2014 using 2013 as the base year?o(show how calculations was received)What would be the growth inreal GDP?Why is there unemployment even when the economy is at "full employment"? What aresome “costs of unemployment”?Use the table below:YearCPI2008100.02009102.52010106.02011111.0oWhat is the inflation rate from 2010 to 2011?oSuppose that you have an income of $30,000 in 2008. How much would you needto be able to have the same standard of living in 2009?oWhat are some of the problems with using the CPI as a measure of standard ofliving?Explain some limitations of using GDP as an indicator of standard of living (be sure to dosome research on your own)

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2http://www.econlib.org/library/Topics/HighSchool/RealvsNominal.htmlGDP is the sum of value of all goods produced in the economy.The value is calculated asthe product of prices and quantities.This way the GDP for 2013 will be 10*20 +5*5 =$225. By the same logic GDP in 2014 was 15*21 +6*10 = $375. There is an increase of375-225 =150$. These are nominal GDp figures as the valuation is done at prices of thecurrent year.A better and more practical way is to note the change in productionlevels alone. We have an increase of 5 T shirts(=15-10) and 5 hamburgers (=10-5). Thechange in GDP must be attributed to rise in these values only, and not the rise in pricesof these goods. To net ‘out’ the effect of price rise on GDP we have the concept of realGDp.Real GDP of a year values quantities produced in that year at the prices of base year.So Real GDP for 2014 will use prices of 2013 and quantities of 2014.Real GDP = 21*10+6*5= 240. Thus GDP has risen by only 240-225=$15, if we net out theeffect of price rise.This translates into a growth rate of (15/225)*100= 100/15 = 6.66%2. Why is there unemployment even when the economy is at "full employment"? Whatare some “costs of unemployment”?Unemployment refers to a situation where those who are willing to work are unable tofind work. Labour force includes those who are employed as well as unemployed amongthe group that is above 16 and non-instutionalised. At any given point in time, we donot expect unemployment to be 0. We expect unemployment to be at natural rate of

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