22.

flexible wages Wages which are free to move up and down as necessary to preserve equilibrium in labour markets. flexible prices Prices which are able to adjust in either direction, as necessary to clear markets.

Recession and depression: Recession called when there is two consecutive fall of output then we called it recession. if there is more then two consecutive quarter of output fall then its depression. 1929 is the depression period in the histoy of world which prevailed 4 years.

[ The Great Depression was a severe worldwide economic depression in the decade
preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s. It was the longest, most widespread, and deepest depression of the 20th century. In the 21st century, the Great Depression is commonly used as an example of how far the world's economy can decline. The depression originated in the U.S., starting with the fall in stock prices that began around September 4, 1929 and became worldwide news with the stock market crash of October 29, 1929 (known as Black Tuesday). From there, it quickly spread to almost every country in the world.

Two part of upswing: from trough the output started to rise until the past peak level is called recovery. And rising beyond that past peak level is called expansion phase. Downswing means movement from peak to next trough. If its for short period and and least for two periods then it called recession and if the output falls fro more then two quarter then its called depression. Amplitude and length can change over time. Distance between Peak and slump is called amplitude and distance between one peak and another peak is called Length. What Does Peak Mean? The highest point between the end of an economic expansion and the start of a contraction in a business cycle. The peak of the cycle refers to the last month before several key economic indicators, such as employment and new housing starts, begin to fall. It is at this point that real GDP spending in an economy is its highest level.

What Does Trough Mean? The stage of the economy's business cycle that marks the end of a period of declining business activity and the transition to expansion.

20
There is problem with per capita GDP. In two country, A and B has same per capita real GDP. Country A has equal distribution of wealth and Country B has unequal distribution of wealth. In this matter, the Country A is better then the country B. Real GDP only evaluate the standard of living in the monetary term, which ignore the factors which are also important for people in the standard of living, such as environment. In view of the fact of the industrial revolution, world wide economic growth has been mostly based on the high consumption of natural resources and energy. This model contributed to the heavy cost of high consumption, low benefits and serious pollution. Although the increase of real GDP result the growth of economy of a country, the industry developed speedily and caused serious pollution to the environment, which was demonstrated by a series of environmental pollution incidents shocking the world. Firstly, Real GDP only includes the total domestic production of an economy thus understates the wealth of economy. Therefore real GDP could not show the full position of a countrys economy, thus it is difficult to measure the standard of living. Secondly, real GDP ignore the income distribution. A country with higher real GDP may still present poor living standard because the situation that some people get richer but others

get poorer does not show a high standard of living. Thirdly, real GDP only evaluate the standard of living in the monetary term, which ignores the factors which are also important for people in the standard of living, such as environment. A countrys higher real GDP is based on the cost of environment could not indicate a good standard of living. Fourthly, the growth of real GDP does not always lead to improvement in living standards. All countries must place emphasis on balanced and sustainable development that also takes into account human needs centered development.

[In this situation, the external monies excluded from real GDP may lead the real GDP of
Japan relatively lower than it should have been and as a result the standard of living in Japan should also have been reasonable lower than it should have been. However, in the practice, the living standard of Japan is still high in the world. This is because although overseas earning is excluded from Japans real GDP, the profit brought from overseas to Japan could help Japan to boost its economy. Thus the economy gets wealthier; the standard of living gets higher. People may argue that the standard of living in Japan is high because its real GDP has always been high. Whilst it is true that real GDP of Japan is always high in the world, we should not ignore that with the overseas output added to Japans real GDP may result even higher real GDP but same standard of living. It gives us a logical conclusion that a country with its most income from overseas entities may result a pretty lower real GPD but good standard of living. Consequently, real GDP could not adequately measure the standard of living from international perspective. GDP is only focus on a nations production, but the production may be a poor indicator of peoples standard of living. It is because production does not equal to consumptions. Production only provides basis for people to consume, but the right to consume is held by the people in the country. If GDP rises as a result of an increase in investment, this will not lead to a rise in current standard of living. It will, we only can say it helps to raise the future consumption. If production increases, this may be due to technological advance. However, if the increase is as a result of people having to work harder or longer hours; its net benefit will be less. This is because although the real GDP is raised as a result of increase in production, people are living more stressed and tired which is not improving the living standard but make its worse. Furthermore, real GDP figures can be misleading, for example, a growing economy may have rising production levels but also may have a large or growing population which works against any positive effect on the standards of living. The most specific case is China. China has one of the fastest growing economies, with average 7% GDP growth for 11 years in the world. China's real Gross Domestic Product (GDP) in 2002 was more than eight times that of 1978, the year when Deng Xiaoping launched the country's economic reform program. Its real GDP growth, which has averaged 10% per year during 1980 - 2001, had slowed to a range of 7 - 8 % per year during 1998 - 2002 (IMF Survey 2003). Standards and Poor's DRI, a private international forecasting firm, projects China's GDP to grow at an average annual rate of 7% over the next 15 years (Morrison 2000). Although China has a rapid growth GDP, China remains a poor country in peoples standard of living. The Chinese leadership faces profound challenges as it seeks to sustain rapid economic growth and deliver rising living standards to its population. It

must further cut tariff levels and eliminate non tariff barriers in order to meet WTO requirement. This opens up the economy to even more foreign competitions and stimulates structural changes that will add to the unemployment which at 2003 stood at 170 million (Wolf 2003). Apart from the unemployment issue, China's leadership must grapple with income inequality, which is increasing on virtually every identifiable dimension. Both unemployment and income inequality could trigger social unrest. This is because China has the largest population in the world and it is really difficult to make everybody rich at the same time with little money. Following the economy growth in china, many people have improved their standard of living but a lot people are still living poorly. The income inequity has made people live very differently in China and this could cost problem for the society as a whole. For instance, the poor people could commit crime like stealing, robbery, in order to cope with their life. Consequently, the growth of real GDP did not lead the improving of standard of living for the society as a whole. In another words, GDP sometimes could not fully represent the standard of living. Moreover, the standard of living of country is always affected by the government policies, which have little relation to its real GDP. For instance, several countries have a high real GDP but are ranked comparatively lower down on the Human Development Index published by the UNDP. This is because although the governments have the funds, they are not utilizing them on improvement in the living standards. This is mainly noticed in the sub Saharan and Middle Eastern countries like Botswana, U.A.E, Qatar, Saudi Arabia, Iran, and Equatorial Guinea and so on. On the other hand, many countries are following a free market policy today, which means minimum government intervention. In this kind of an economy, foreign investment increases and there is a greater flow of goods into the country. Some economists believe that when there is more investment and money is flowing into the economy leading to development there is bound to be an increase in the income of the entire nation, thus increase in the real GDP and leading to better standards of living. However, although there is an increase in real GDP, the rich get to cash in on the opportunities while the poor get even more impoverished. A large disparity in wealth can be observed in these nations, and although economy has increased phenomenally, living standards continue to remain disastrous. An example can be taken by Thailand. Next, real GDP only evaluate the standard of living in the monetary term, which ignore the factors which are also important for people in the standard of living, such as environment. In view of the fact of the industrial revolution, world wide economic growth has been mostly based on the high consumption of natural resources and energy. This model contributed to the heavy cost of high consumption, low benefits and serious pollution. Although the increase of real GDP result the growth of economy of a country, the industry developed speedily and caused serious pollution to the environment, which was demonstrated by a series of environmental pollution incidents shocking the world. Development of resources, energy demand and the pollution that results have seriously reduced the amount and quality of natural communities of plants and animals all over the World. They have also led to a process of atmospheric warming which now causes a threat of climate change. Some people argue that Pollution has to be stopped at source. Economic growth has to be limited and the health and safety of the planet must become the main criteria in political and social development to maintain the quality of life which can be improved for all groups on the planet. In this situation, the growth of real GDP

does not lead the increase in the standard of living. Quite oppositely, the more growth in real GDP, the terribly the environment get polluted and the worse the quality of the peoples life is. Another, real GDP ignores the distribution of income. If some people gain and others lose, we cannot say that there has been an increase in standard of living. Typical example is china. Following the fast growth of economy, a lot people grow very rich while others are left behind. In average, china still poor in living standard. In addition, employment is an important factor in evaluating living standard. Suppose everybody in a country is employed, then there would not be anybody leaving behind. A country with pretty high real GDP does not mean everybody is employed because the higher real GDP may be due to investment in road, office and etc, which is irrelevant to employment. In another words, the percentage the labour that could distribute from national income is an indicator to determine whether people in this country is rich enough to cope with their living. The more the labour is distributed from the national income, the more people get employed and the higher the living standard could be. In contract, the less the labour gets distributed from national income, the less people get employed and the poor the people might be. Consequently, the figure of real GDP does not decide the standard of living; the percentage of labour distributed to national income which is related to the total real GDP is the indicator. In conclusion, it can be clearly seen that real GDP can not always adequately measure the standard of living of a nation from various perspectives. Firstly, Real GDP only includes the total domestic production of an economy thus understates the wealth of economy. Therefore real GDP could not show the full position of a countrys economy, thus it is difficult to measure the standard of living. Secondly, real GDP ignore the income distribution. A country with higher real GDP may still present poor living standard because the situation that some people get richer but others get poorer does not show a high standard of living. Thirdly, real GDP only evaluate the standard of living in the monetary term, which ignores the factors which are also important for people in the standard of living, such as environment. A countrys higher real GDP is based on the cost of environment could not indicate a good standard of living. Fourthly, the growth of real GDP does not always lead to improvement in living standards. All countries must place emphasis on balanced and sustainable development that also takes into account human needs centered development. Although the growth of real GDP is very important to every country, we should not ignore the peoples living standard. All in all, real GDP could not adequately measure the standard of living in circumstances. ]

19
In Bangladesh there are women workforce contribute in the household works and performs many duties to families. Duties and services, contributed by women of Bangladesh remains out of calculation to Real GDP. Underground economic activities are remain out of calculation. Activities like not immoral and illegal is also remain out of calculation of real GDP. This activities are kept hide to avoid the income tax.

17
What items are omitted in the calculation in GDp.. Women contribution in the economy is not counted. The underground activities are not counted. Petty business and vendors activities are not counted.

18
The activities are illegal immoral and activites are kept secret is not counting in GDP. Both illigae and immoral activites. Morally alright but illigale activites.

16 Income Approach
This method measures GDP by adding incomes that firms pay households for the factors of production they hire- wages for labor, interest for capital, rent for land and profits for entrepreneurship. The US "National Income and Expenditure Accounts" divide incomes into five categories: 1. 2. 3. 4. 5. Wages, salaries, and supplementary labour income Corporate profits Interest and miscellaneous investment income Farmers income Income from non-farm unincorporated businesses

These five income components sum to net domestic income at factor cost. Two adjustments must be made to get GDP: 1. Indirect taxes minus subsidies are added to get from factor cost to market prices. 2. Depreciation (or capital consumption) is added to get from net domestic product to gross domestic product. Income approach

Measure the sum of income for the factors of production distributed by the RPUs. The rewards to their production of goods and provision of services. This approach calculates National Income, NI. NI is the sum of the following components:

Labor Income (W) Rental Income (R) Interest Income (i) Profits (PR) NI = W + R + i + PR Labor Income (W): Salaries, wages, and fringe benefits such as health or retirement. This also includes unemployment insurance and government taxes for Social Security. Rental Income (R): This is income received from property received by households. Royalties from patents, copyrights and assets as well as imputed rent are included. Interest Income (i): Income received by households through the lending of their money to corporations and business firms. Government and household interest payments are not included in the national income. Profits (PR): The amount firms have left after paying their rent, interest on debt, and employee compensation. GDP calculation involves accounting profit and not economic profit.

Expenditure approach
In economies, most things produced are produced for sale, and sold. Therefore, measuring the total expenditure of money used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP. Note that if you knit yourself a sweater, it is production but does not get counted as GDP because it is never sold. Sweater-knitting is a small part of the economy, but if one counts some major activities such as child-rearing (generally unpaid) as production, GDP ceases to be an accurate indicator of production. Similarly, if there is a long term shift from non-market provision of services (for example cooking, cleaning, child rearing, do-it yourself repairs) to market provision of services, then this trend toward increased market provision of services may mask a dramatic decrease in actual domestic production, resulting in overly optimistic and inflated reported GDP. This is particularly a problem for economies which have shifted from production economies to service economies. Expenditure Approach GDP = C + I + G + (X- M)

* C = Private consumption expenditure * I = Investment Expenditure * G= Government Consumption Expenditure * X = Value of Exports * M = Value of Imports

In this approach GDP is calculated as the sum of four categories of expenditures on output. These are: Gross Private Consumption Expenditures(C) Gross Private Investment (I) Government Purchases (G) Net Exports (X - M) GDP = C + I + G +NX

15
Value added approach Value Added Approach How to measure GDP using the Value Added approach? * GDP is the nations expenditures on all FINAL goods and services produced during the year at market prices. Two Things To Avoid * Intermediate goods * Transfer Payments Two Things to Avoid when Compiling GDP * Multiple counting o Only expenditures on final products what consumers, businesses, and government units buy for their own use belong in GDP + Intermediate goods are not counted + Used goods are not counted

Two Things to Avoid when Compiling GDP * Transfer payments

o Transfer payments are not payments for currently produced goods and services + When they are spent for final goods and services they will go into GDP as consumer spending + Financial transactions dont go into GDP

Why only Final Goods * Counting the sale of final goods and intermediate products would result in double and triple counting. What is counted? What is not? Only the value of the final sale is counted. The cost of the parts is included in the final sale price So they are not counted when the manufacturer buys them. This is confusing! * The tires that come with the car is not counted as a final good * However if you get a flat and buy the same tire it is counted as a final good No Problem! * To correct for this problem economist have created the Value Added approach. Value Added Approach Eliminates Double Counting The Value-added Approach to Measuring GDP Production Generated Added Farmer harvest wheat $100 $100 Miller makes into flour 200 100 Baker makes into bread 300 100 $600 $300 GDP counts only the $ value of the final good

This is the same as the value-added. Calculating GDP GDP can be calculated three ways: * add up the value added of all producers; * add up all spending on domestically produced final goods and services, leading to the equation: GDP = C+I+G+X-IM; add up the all income paid to factors of production

Value Wages+salries+rent+rental+taxes-subsidies given by gov.