Macroeconomics Inflation and Unemployment Exchange Rate and Open Economy - Term Paper Example

The national output per head is assumed to represent the standard of living. The total national output is divided by the number of people in a nation. An increase in the national income per capita is a representation of an improvement in the standards of living in a country (Sowell, 13). This is because it means the national output or income is increasing while the population is constant. More is given out in terms of production by the same number of people in a nation that is, holding all other factors constant (Miller, 2011).

One challenge in using national income statistics to measure and compare living standards of people in different nations is that there is no common currency .Different nations use different currency thus national income is hard to compare across different nations. The dollar or the euro is however used in most cases which involves converting all data in a common measure (Riley, 2006). The purchasing power of the dollar or Euro is different in different nations so there many adjustments have to be made to cater for differences in average costs of goods and services in different countries (Sowell, 2000).

Another challenge is GPD usage in representation of living standards, it only focus on economical aspects; other important aspects of life cannot be expressed in national income data. . This will reflect an improvement in output yet loss of leisure hours is a decrease in standard of life. There could be imbalances between consumption and investment which is not recognized while computing the national income and output statistics. The net disposable income of an individual may seem to increase after a change in spending priorities.

Over consumption may mean a nation’s economy will suffer instability in the long term (Riley, 2006). Life expectancy changes can not be represented in the GPD yet it is a representation of standards of living. Assigning a value on the life of people is hard thus; reduction in mortality rates is not recognized in GPD. The government in open economies will regulate exports and imports and government spending when stimulating the economy of a nation to maintain balance of payments. 16-5 Frictional unemployment is the unemployment of skilled people with capability to work because there changing jobs to seek better one thus there are voluntarily unemployed.

People competing schools also form part of the frictional unemployment statistics because there are skilled. Frictional unemployment is important in an economy because it makes it possible for worker employee to move to other jobs that they like better and the employers are able to get more suited employee. In an economy, frictional unemployment brings a balance between supply and demand of labor in the labor market (Maynard, 2009). So long as there are people leaving their current job to search for better ones and other leaving schools to join the employment seeking people, frictional unemployment will always be present.

People quit jobs due to different reasons like disagreements, after relocating; acquiring more skills, family issues