Question

1. What does gross domestic product (GDP) measure? 2. What is the difference between real vs.nominal GDP? 3. How is unemployment measured and what are the various types of unemployment?

Answer 1

1. Gross Domestic Product (GDP) is the measure of the market value of all final goods and services produced within the geographic boundary of an economy in a given year.

2. Real GDP is measured on the basis of constant price, whereas, nominal GDP is measured on the basis of current prices. Therefore, nominal GDP does not take inflation into consideration; whereas, real GDP takes inflation.

3. The unemployment rate is measured using the following formula:

Unemployment rate = Total number of unemployed/size of the labor force * 100

The total number of unemployed includes the portion of the labor force which does not have a job and which have been actively looking for a job in the previous four weeks.

The labor force includes all working-age population which is not in military or institutionalized (like in mental asylums or prisons)

Various types of unemployment are:

1) Frictional unemployment: When people are between jobs.

2) Cyclical unemployment: Unemployment caused by the business cycle.

3) Seasonal unemployment: Unemployment caused by changes in seasons.

4) Structural unemployment: Unemployment caused by skill gaps.