Please answer the following practice questions clearly and comprehensively. Please include references if applicable.
1. Explain why economists focus on REAL GDP as opposed to NOMINAL GDP in tracking the business cycle?
2. What are the FOUR different types of unemployment? Why should you avoid being structurally unemployed?
3. What is the MOST used TOOL by the FED in manipulating interest rates and the money supply?
4. What type of Fiscal Policy is the current Obama administration implementing? Be specific
1. Economists focus on real GDP as opposed to nominal GDP because changes in real GDP point towards actual changes in production of goods and services within a country, not just on changes in the monetary value of what is being produced. Nominal GDP is defined to be the value of all goods and services produced within a country in a given time using current prices. Real GDP is defined to be the total value of final goods and services produced within a country in a given time period using fixed prices. Using fixed prices frees up the aggregate number, the GDP, from the impacts of price fluctuations. Therefore, when real GDP goes up it means actual production has gone up, and when it goes down it means actual production has gone down. Our utility depends on actual consumption and not on the monetary value of the good, and given that economists goal is to look for way to maximize utility ...
REAL GDP is contrasted to NOMINAL GDP.