Economic Indicators and Their Implications: Real GDP, Unemployment, Inflation, and Standard of Living
A solved assignment analyzing key economic indicators such as GDP, unemployment, inflation, and their societal impacts.
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Economic Indicators and Their Implications: Real GDP,
Unemployment, Inflation, and Standard of Living
1. Suppose that in 2013, the economy produced 10 shirts at $20 each and 5
hamburgers at $5 each. In 2014, the economy produced 15 shirts at $21 each
and 10 hamburgers at $6 each. What is the value of real GDP produced in 2014
using 2013 as the base year? What would be the growth in real GDP?
Suppose that in 2013, the economy produced 10 shirts at $20 each and 5 hamburgers at $5
each. In 2014, the economy produced 15 shirts at $21 each and 10 hamburgers at $6 each.
What is the value of real GDP produced in 2014 using 2013 as the base year?
o (show how calculations was received)
What would be the growth in real GDP?
Why is there unemployment even when the economy is at "full employment"? What are
some “costs of unemployment”?
Use the table below:
Year CPI
2008 100.0
2009 102.5
2010 106.0
2011 111.0
o What is the inflation rate from 2010 to 2011?
o Suppose that you have an income of $30,000 in 2008. How much would you need
to be able to have the same standard of living in 2009?
o What are some of the problems with using the CPI as a measure of standard of
living?
Explain some limitations of using GDP as an indicator of standard of living (be sure to do
some research on your own)
Unemployment, Inflation, and Standard of Living
1. Suppose that in 2013, the economy produced 10 shirts at $20 each and 5
hamburgers at $5 each. In 2014, the economy produced 15 shirts at $21 each
and 10 hamburgers at $6 each. What is the value of real GDP produced in 2014
using 2013 as the base year? What would be the growth in real GDP?
Suppose that in 2013, the economy produced 10 shirts at $20 each and 5 hamburgers at $5
each. In 2014, the economy produced 15 shirts at $21 each and 10 hamburgers at $6 each.
What is the value of real GDP produced in 2014 using 2013 as the base year?
o (show how calculations was received)
What would be the growth in real GDP?
Why is there unemployment even when the economy is at "full employment"? What are
some “costs of unemployment”?
Use the table below:
Year CPI
2008 100.0
2009 102.5
2010 106.0
2011 111.0
o What is the inflation rate from 2010 to 2011?
o Suppose that you have an income of $30,000 in 2008. How much would you need
to be able to have the same standard of living in 2009?
o What are some of the problems with using the CPI as a measure of standard of
living?
Explain some limitations of using GDP as an indicator of standard of living (be sure to do
some research on your own)
2
http://www.econlib.org/library/Topics/HighSchool/RealvsNominal.html
GDP is the sum of value of all goods produced in the economy. The value is calculated as
the product of prices and quantities. This way the GDP for 2013 will be 10*20 +5*5 =
$225. By the same logic GDP in 2014 was 15*21 +6*10 = $375. There is an increase of
375-225 =150$. These are nominal GDp figures as the valuation is done at prices of the
current year. A better and more practical way is to note the change in production
levels alone. We have an increase of 5 T shirts(=15-10) and 5 hamburgers (=10-5). The
change in GDP must be attributed to rise in these values only, and not the rise in prices
of these goods. To net ‘out’ the effect of price rise on GDP we have the concept of real
GDp.
Real GDP of a year values quantities produced in that year at the prices of base year.
So Real GDP for 2014 will use prices of 2013 and quantities of 2014.
Real GDP = 21*10+6*5= 240. Thus GDP has risen by only 240-225=$15, if we net out the
effect of price rise.
This translates into a growth rate of (15/225)*100= 100/15 = 6.66%
2. Why is there unemployment even when the economy is at "full employment"? What
are some “costs of unemployment”?
Unemployment refers to a situation where those who are willing to work are unable to
find work. Labour force includes those who are employed as well as unemployed among
the group that is above 16 and non-instutionalised. At any given point in time, we do
not expect unemployment to be 0. We expect unemployment to be at natural rate of
http://www.econlib.org/library/Topics/HighSchool/RealvsNominal.html
GDP is the sum of value of all goods produced in the economy. The value is calculated as
the product of prices and quantities. This way the GDP for 2013 will be 10*20 +5*5 =
$225. By the same logic GDP in 2014 was 15*21 +6*10 = $375. There is an increase of
375-225 =150$. These are nominal GDp figures as the valuation is done at prices of the
current year. A better and more practical way is to note the change in production
levels alone. We have an increase of 5 T shirts(=15-10) and 5 hamburgers (=10-5). The
change in GDP must be attributed to rise in these values only, and not the rise in prices
of these goods. To net ‘out’ the effect of price rise on GDP we have the concept of real
GDp.
Real GDP of a year values quantities produced in that year at the prices of base year.
So Real GDP for 2014 will use prices of 2013 and quantities of 2014.
Real GDP = 21*10+6*5= 240. Thus GDP has risen by only 240-225=$15, if we net out the
effect of price rise.
This translates into a growth rate of (15/225)*100= 100/15 = 6.66%
2. Why is there unemployment even when the economy is at "full employment"? What
are some “costs of unemployment”?
Unemployment refers to a situation where those who are willing to work are unable to
find work. Labour force includes those who are employed as well as unemployed among
the group that is above 16 and non-instutionalised. At any given point in time, we do
not expect unemployment to be 0. We expect unemployment to be at natural rate of
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Subject
Economics