Question

1. (15 pts) (a) What is the difference between actual (nominal) GDP and real GDP?

a. Which is used to track the business cycle: nominal or real GDP?

b. Which type of unemployment involves workers with marketable job skills: frictional or structural?

c. Define “natural unemployment.”

d. List two items that are excluded from GDP.

Answer 1

Nominal gdp is the total sum of all the economic activities producing goods and services in a year, valued at the current market price. on the other hand real gdp refers to the total sum of all the economic activities producing goods and services in a year, valued at some pre decided base market price. thus real gdp takes inflation into account, hence it is usually lower than the nominal gdp

a. business cycles are usually measured with real gdp

b. correct answer is frictional unemployment. structural unemployment involves workers having skills that are not demanded in the market, hence it is not the right answer.

c. natural unemployment is a minimum threshold level of unemployment that always exists in the economy. it results due to reasons such as people moving in and out of jobs, or a temporary mismatch between skills demanded by the firms and the skills possessed by the workers.

d. items included from gdp are: sales of used goods, and illegal sales( black market sales)