- Is the GDP Still Accurate in the Digital Age?
GDP is the sum of all income earned in a country during a year. Alternatively, it can be thought of as the value of all production in an economy during a year. But do income and production measure happiness? The way we measure GDP can both overstate and understate people’s happiness and well-being. It understates economic activity and well-being when it does not take into account production that is not exchanged in a market (grandma providing free baby-sitting) and leisure time. It overstates well-being when two otherwise identical activities are measured the same even though one produces more pollution.
Reply to these questions to begin your discussion:
- Should we continue to measure GDP as we do now? If you don’t think it should be changed, explain your reasoning. If you think it should be changed, what changes would you recommend, and why?
- Unemployment and Inflation
Two of the biggest issues in macroeconomics are inflation and unemployment. Policymakers would like to keep both of these measures low. Often, however, there is a tradeoff between the two. A strong economy that lowers unemployment can put upward pressure on prices. A weak economy that lowers inflation can increase unemployment.
We currently have the benefit of both very low unemployment and inflation. But things could change and it’s good to have policy plans in place before either of these problems gets too bad.
Imagine that you are in charge of macroeconomic policy. Answer these questions, being sure to explain your answers.
What are some of the problems, difficulties, or hardships caused by unemployment?
What are some of the problems, difficulties, or hardships caused by inflation?
If you had to make a choice today between a policy that would head off increases in inflation or increases in unemployment, which one would you choose?
- Exploring Tax Cuts, Jobs, and Tax Revenue
There has been discussion about whether the Tax Cuts and Jobs Act that took effect in 2018 will increase tax revenue. Tax revenue can be thought of an as average tax rate multiplied by taxable income. If the average tax rate falls while taxable income stays the same, tax revenue will fall. But what if the tax cuts increase taxable income? Both of the major schools of thought in macroeconomics (Keynesians and Neoclassicals) believe that tax cuts increase economic growth. Economic growth increases taxable income. Our recent economic growth has brought unemployment down to historically low levels.
Think about this. Reply to these questions to begin your discussion:
- Do you think that the tax cuts of the Tax Cuts and Jobs Act will increase economic growth and taxable income so much that tax revenue will increase?
- Or do you think that the tax cuts will reduce tax revenue? Explain your answers.
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