Text 2 Gross Domestic Product

Gross domestic product (GDP) is the total value of goods and services produced in a country over a period of time. GDP may be calculated in three ways: (1) by adding up the value of all goods and services produced, (2) by adding up the expenditure on goods and services at the time of sale, or (3) by adding up producers’ incomes from the sale of goods or services. However, it is difficult to measure GDP precisely, partly because every country has an unofficial economy, often called a black economy that consists of transaction not reported to government.

GDP measures a country’s economic activity regardless of who owns the productive assets in that country. For example, the output of United States – owned companies based in Australia is considered part of Australia’s GDP rather than part of the U.S. GDP. Most countries now consider GDP to be the best measure of economic activity. However, until as recently as the early 1990s, the United States, Germany, and Japan commonly used the Gross National Product (GNP) to measure economic activity. GNP is the total of incomes earned by residents of a country regardless of where the assets are located. In other words, the income earned by a U.S.-owned business based in Australia would be considered part of the U.S. GNP, not Australia’s.

Many economists use the GDP to measure the standard of living in a country. They divide a country’s GDP by its population to arrive at GDP per head. The figure is then often converted into U.S. dollars to allow for comparisons between countries. If GDP grows at a higher rate than the population, standards of living are said to be rising. If the population is growing at a higher rate than GDP, living standards are said to be falling. GDP per head does not take the cost of living into account. As a result, some people believe it more accurate to judge living standards in other ways. One estimate of living standards is the Human Development Index, published for the first time in 1990 by the United Nations Development Program. It uses a scale of 1 to 100 and takes into account GDP per head, adult literacy, and life expectancy.

1. What is gross domestic product (GDP)?

2. How may GDP be calculated?

3. Why is it difficult to measure GDP precisely?

4. How do many economists measure the standard of living in a country?

5. Do some people believe it more accurate to judge living standards in other ways than by GDP per head?

Text 3 Unemployment

1. We say that unemployment exists when people capable and willing to work are unable to find suitable paid employment. But where an economy is adapting to changing conditions, there will always be some persons unemployed as they change jobs or as seasonal work comes to an end.

2. Unemployment may occur for many different reasons. There will always be some people changing jobs. In certain occupations, e.g. unskilled labour in the construction industry, workers are not employed regularly by one employer. When a contract is completed labour is not required. Occasionally workers are discharged when a factory is being reorganized.

3. Unemployed workers usually register at the local employment exchange from which employers can hire them. The unemployed are paid certain benefits.

4. Employment in some industries, e.g. building, fruitpicking is seasonal in character. Seasonal employment can be reduced out of “season” and admit such persons as students and housewives during the busy period. Sometimes there are unemployed workers of a particular occupation in one part of the country but a shortage of the same type of work in one other parts. Thus today there is a surplus of unskilled and manual labourers in the north of England, whereas firms in the London area have vacancies unfilled. Two main reasons can be suggested for this type of unemployment – ignorance of opportunities, and immobility of labour.

5. Workers may be in “between jobs”. Some of them are looking for better jobs, others are seeking better salaries. Young people search for their first jobs. This is called frictional unemployment. This type is usually short-term and regarded as inevitable.

6. Unemployment may also be caused by important changes in the structure of consumer demand and in technology. As a result some workers find that their skills and experience are unwanted by these changes. This type of employment is more long-term and regarded as more serious. It is known as structural unemployment.

7. The full-employment or natural rate of unemployment ranges between 5 and 6 percent.

What types of unemployment can we distinguish?

Why is frictional unemployment regarded as inevitable?

What causes structural unemployment?

What is the national rate of unemployment?

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