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Macroeconomics and Microeconomics - Macro4M - Essay Example

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Macro4M Name: Course: College: Tutor: Question one Real gross domestic production (GDP) is more meaningful to economic policy makers than nominal GDP. They consider GDP as a measure of the monetary value of all final goods and services a nation produces in a specific financial year (Pirayoff, 2004, p.37)…
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Macroeconomics and Microeconomics - Macro4M
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Macroeconomics and Microeconomics - Macro4M

Download file to see previous pages... The measure does not reflect the initial purpose as observed by economic policy makers. In that case, the output presented is not the actual output of the nation. In essence, it cannot tell the policy makers whether the economy produced more goods and services since the measure changes with prices and quantity. On the other hand, real GDP is adjusted for inflation or deflation. It measures GDP in constant prices. As a result, economic policy makers are able to identify the changes in the actual production of final goods (Boyes & Melvin, 2010, p.108). Indeed, it measures the quantity of goods and services a nation produces after eliminating the effects of price changes. Unlike nominal GDP which significantly reflects increased prices, real GDP indicates actual changes in the output. Economic policy makers would be more interested in more goods and services than higher prices in order to evaluate the economic status of the country. In fact, it is better to have nominal GDP rise due to higher output than due to higher prices. Economic policy makers want the nominal GDP to increase because of an increase in real GDP. If economic policy makers were to rely on the nominal GDP in determining national output, they would in many cases make ineffective decision. This is because, the large part reflected in the increasing output is as a result of price fluctuations. The actual output devoid of any influence is most important in national policy making. Therefore, they will always consider real GDP to be the reliable determinant of the output in order to make the most appropriate economic decision. Question two Gross domestic production (GDP) and other national income measure have been considered to be inadequate measure of social welfare (Elizabeth & UMAE, 2007, pp.20-25). This is because GDP measures all consumption, government spending and investments within a country plus exports, regardless of the citizenship of the investors or consumers. This measure counts air pollution, cigarette advertising as well as ambulances that clear the ways of bloodshed. It counts environmental destruction and the costs created by inhumane behaviors. The measure includes jails and correction facilities for the people who break the law. However, GDP does not include important social measures such as the health of the people, the quality of education, the beauty of culture, the strength of families. It does neither count the integrity of the leaders nor their intelligence. GDP does not measure the courage or wisdom of the people neither does it measure empathy nor devotion of the people. Essentially, GDP is a measure of many things but does not emphasize on the things that make life meaningful. There are conceptual problems noted with using GDP as a measure of social welfare that can be easily eliminated in order to make it a better measure of social welfare. First, the measure can be tailored to register monetary exchanges as well as social exchanges. Second, it should not include commodities that lower social wellbeing such as weaponry and terrorism costs. The measure should place value on social practices like leisure-time and cultural qualities. Most important, GDP must not ignore the distribution of income and wealth within the society. This might include special consideration of the specific areas that can enhance comfortable living of the citizens such as offering employment opportunities. ...Download file to see next pagesRead More
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