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ECON 1100 Study Guide - Final Guide: Frictional Unemployment, Gross Domestic Product, Eveline

Course Code
ECON 1100
Eveline Adomait
Study Guide

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January 28, 2015
PEAR Assignment : Measurement Issues of Three Indicators
!Many have argued that economics and specifically macroeconomics is omnipresent
throughout our society and I would say I agree. Certain macroeconomic concepts such as GDP
(Gross Domestic Product), unemployment and inflation are in fact quite relevant in today’s
society and can have remarkable consequences. However, as presented through Dinner Party
Economics by Eveline Admit and Richard G. Maranta and other media outlets, these concepts can
be hard to measure due to certain factors.
!A first concept by which macroeconomists seem to be fascinated, is Gross Domestic
Product, or GDP for short. GDP basically entails the income received and or generated by an
entire country during a certain amount of time. GDP is generally calculated by taking into
consideration the sum of 4 main components : consumer spending, business investment,
government purchases as well as net exports (48). It may seem that GDP takes into account most
of the income generated in a country however, the measurement of GDP can be inexact and in
fact understate the true value of production (and consumption) of the nation. This is the case
since certain production elements and/or methods remain unaccounted for in the
aforementioned basic GDP calculation formula. One of those overlooked methods of production
is household production. By looking at the example of the very simple society found in Dinner
Party Economics, if one of its members were to want to bake their own bread instead of purchasing
it, there would be no good way to verify the value of the home production that took place (47).
There is no real, calculable or concrete way of finding out the value of the work that took place.
Similarly to this economy, a country’s GDP will not include the value of home production since
there is no real way of ascertaining its value. Therefore, this creates an issue in the exactitude of
measurement when looking at GDP which ultimately results in the understatement of the true
value of production of a nation.
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