GDP is the monetary value of all goods and services produced in a given nation within a specified period. GDP is calculated after every year and it includes all investments, public and private consumptions, government outlays and exports fewer imports. GDP is a measure of nation’s economic health. Nevertheless, Gross Domestic Product is a measure of the nation’s standards of living. Countries are compared on with respect to their Gross Domestic Product since it shows the monetary value of the country’s economy. Ideally, the greater the GDP, the bigger the economy of the country. It is measured using two different ways that include income approach and the expenditure method (Krugman and Robin 216).
GDP has various limitations as it focuses on giving the monetary value of the nation’s economy. First, Gross Domestic Product fails to take account of the existence of inflations and deflations. Inflation and deflations play a great role in determining the GPD of a given country. For instance, a rise in inflation may lead to increase in GDP. In addition, GDP fails to measure negative externalities.
Nevertheless, environmental pollutants such as carbon (IV) oxide emission may not be considered when measuring the GDP although they may have a great effect to it. Furthermore, it fails to consider black markets and the illegal economic transactions undertaken in the world. Apart from the abovementioned limitations, GDP can be criticized for its failure to take into consideration other economic transactions such as material well-being. For instance, countries experience an increase in the GDP growth from one year to another. However, the increase does not lead to increased happiness.
Unemployment is a situation where people are willing to work, but they cannot get jobs. There are three types of unemployment. First, is the structural unemployment which refers to a situation where jobs do not match with workers. Mainly, this is caused by lack of skills or the wrong choice of the area of work. Ideally, this type of unemployment is largely dependent on the economy’s social needs as well as the changes in the economy. For example, many skills are rendered obsolete due to technological advancements. For instance, use of computers has rendered many manual jobs in bookkeeping useless. Ideally, this is due to the introduction of efficient computer software that performs the same task efficiently. Therefore, this unemployment calls for the workers to try and acquire new skills in order to obtain a new job.
Another type of unemployment is frictional unemployment that arises, as a result, of employers and workers lacking complete or consistent information. Frictional unemployment may also be, as a result, of workers having poor job performance or having obsolete skills. It arises due imperfection information on available jobs and, therefore, the subsequent cost of trying to get a new job (Katharine 324).
Finally, is the cyclical unemployment that arises due to a contraction in the economy. Economic growth creates employment since many job opportunities crop up. On the contrary, an economy that is in a recession usually has higher unemployment levels. This is because job opportunities are fewer than the unemployed workers.
The internet can not eliminate frictional unemployment, but it can help reduce its magnitude. This can be achieved because the internet provides a lot of information on available job openings. Therefore, the unemployed can find this information online and apply for jobs whose descriptions match their skills and qualifications.
According to economic theories, it is hard to attain a 100% employment level in the economy. There should be a small percentage of frictional and structural unemployment in an economy. This is because a lower rate of unemployment leads to a higher rate of inflation. The reason for this is because labour tends to be more expensive than capital equipments at some time. Therefore, not all types of unemployment are undesirable in an economy due to the existing trade-off between unemployment levels and inflation rates.
Katharine, Abraham. Structural/frictional versus deficient demand unemployment; some new evidence-primary source edition. New York: Nabu Press, 2013. Print.
Krugman, Paul R., and Robin Wells. Economics. New York: Worth Publishers, 2006. Print.