Question

Briefly explain/discuss each of the following concepts/issues: a) Gini Coefficient b) underground economy c) GDP deflater d) the uses of economics

Answer 1

Step 1- Gini coefficient:
Also known as the Gini index. It is a measure developed in 1912 by the Italian statistician Corrado Gini for measuring distribution. It is used as a measure of economic inequality, income distribution, wealth distribution, etc. among a population. It ranges from 0 to 1, here 0 shows perfect equality, 1 shows perfect inequality. Values above 1 are possible because of negative income or wealth.

Step 2- Underground economy/ shadow economy:
It is an economic transaction that is deemed to be an illegal reason might be the trading of goods and service in unlawful nature or transactions might fail to comply with the requirements of government reporting. These transactions are not reported to the government thus are beyond the reach of tax collectors and regulators.

Step 3- GDP deflator/ implicit price deflator:
It is referred to as a more comprehensive measure of inflation. It is a ratio of the value of goods and services that are produced in a particular year by an economy at current prices to the prices that are prevailing during the base year.
It is an extent that increases in gross domestic product happen on the account of higher prices instead of an increase in output.
The entire range of goods and services produced in the economy is covered by the deflator as against the limited commodity baskets for consumer or wholesaler price indices.

Step 4- Uses of economics :
Its study creates a greater understanding of the economy as a whole and events in the news and their impact on individuals.
It prepares students for doing an advance study in business, law, government and other disciplines.
Economic principles strengthen the understanding of economic activity and interaction between consumers and businesses.
It deepens the understanding of economic events at the world level and their effect on the domestic economy.
Its knowledge gives a more sophisticated understanding of government policy and the effects of it.