Emily's Post

Definitions/ Diagrams:

Recession:

Negative GDP for at least 2 quarters

GDP:

The value of final goods and service produced in a given period of time

Real GDP: Inflation adjusted

The Rule of 70:

• To estimate how long it will take for the real GDP of a nation to double
• 70/GDP

Ukun’s Law:

A 1% change in unemployment results in a 2 to 21/2% change in output (GDP).

Measuring GDP:

• Income
• Expenditure Approach
• Adds up the market value of all domestic expenditures made on final goods and services in a single year
• Y (GDP)= C (Consumption  + I (Investment) + G (Government spending) + NX (Net exports)

Intermediate Goods:

• Products going into final goods (ie. leather and rubber that goes into shoes)
• Not included in GDP

GDP Does Not Include:

• Intermediate goods
• Used/resold goods
• Transfer payment
• Exchange of financial assets
• Gray and black market

Article #1: http://www.economist.com/news/leaders/21697834-gdp-bad-gauge-material-well-being-time-fresh-approach-how-measure-prosperity

This article argues that GDP, overtime, has become less and less accurate on calculating material well being.  Some people that defend GDP state that it’s original purpose is not designed to do what it is now asked to do.  It’s original purpose was to gage the economy’s capacity to produce.  Now that we ask it to calculate our well being, it is often inaccurate and hides information.  For example, in America, GDP often shows that we are doing better than Europe.  GDP often exaggerates things for large rich countries.  Now, as GDP grows, living standards are not necessarily following that trend.  What is causing this is the increase in inequality,  For example, the median household income has not really changed in a while.  The article also points out that goods are being valued the same; there is a constant quality.  Like GDP, this assumption worked well in the era of massed produced goods.  What is excluded from the GDP is the customs of businesses they have to tailor to their customers.  The article uses a great example using restaurants.  If a restaurant tailers their outputs to their consumer by serving fresher ingredients and having fewer tables that a they would want, all of that is excluded from the GDP.   Lastly, the article states three main changes to improve GDP: use GDP as a gauge for production, services-dominated rich countries should improve their way of measuring living standards, and GDP should still be an assessment of the flow of income.  

Article #2: http://www.wsj.com/articles/the-rules-that-make-airline-passengers-crazy-1471463854

This article relates to the teach-a-class we had this week.  This article talks about the airline’s rule that limits their passengers.  This topic kinds of links with what are the costs of the airlines, but this addresses the costs for the passengers.  The main point of this article is that airlines have many rules that often confuse their passengers and most of the time, passengers cannot overcome them.  One rule is first-class bump.  People who purchase first class seats can actually be declined that seat in some cases.  For example, if an air marshal needs that seat, the passenger won’t be able to sit there.  Airlines will give the passenger some money back, but they could have bought a coach ticket for much less.  Another rule is for pet carry-ons.  They often count as one of your carry-ons, which does make sense, but airlines do charge more money for them.  This does not make sense because the pets are not receiving any service during the flight.  There are many other rules like this in the article that discuss the unfair disadvantages that these rules put on the passengers.  

Takeaways:

I learned a lot about GDP and more importantly, what it does not include.  This is really interesting to me because I was surprised to see how much it discludes from its calculation.  If GDP is calculating our well being, I do agree with the article that there should be a better way on how to calculate living standards.  I also think that there should be a universal way of doing so.  This will ensure that no exaggerations would occur.  

On the material that we learned from the teach-a-class, I learned kind of the same information as GDP.  I learned a lot of material about airlines that is not really apparent to most passengers.  Maybe if it was more apparent to people about what airlines have to pay to run their flights, people might fly more often.  If they understood what airlines had to pay in order to fly people, passengers might having a better understanding where their money was going.  In turn, if people understood every rule they were agreeing to abide by, airlines might increase their number of passengers.  If people understand what they are getting into, they are more likely to do it.