Business Economics - Gm 545

Business Economics GM545

06 April 2013

Course Project Part 2

Chapter 15 question 14.

For us to understand the limitations of national income account we should have an understanding of the gross national product (GNP). The GNP would be the overall output of an economy which is related to how well we live and the current state of our economy and how we are prepared to sustain any major disruption in the course our economy.

Now the national income accounts are focused to try and measure the total economic activity in a certain period of time. It measures and records transactions that are a part of our income and outputs in that time period. If no measurements and records are kept then the expenditures will be absent from the national income accounts limiting accurate accounting. Also private transaction will not be included like social security or social program benefits, spousal payments, selling of stocks and bonds because it is just the transfer of existing assets. Other activities that create value but are rarely recorded would be household services and activities like raising a child, preparing meals, home maintenance cost, and grounds keeping work just to mention a few. An additional limitation would also be the failure to consider quality in national income tracking. Quality of costs and economic activities affect the overall value. Externalities are another big activity not fully recorded. "Who would pretend to know what opportunity costs (if any) are being taken into account in the design of antipollution measures now actually being carried out in the United States" (Leontief 1973). So when we are looking at externalities like pollution and the processes and steps needed for elimination or reduction cannot always be accurate or covered fully. Because you may have reoccurring conditions that provides different ways to manage or eliminate these pollutants and all cost or total cost is not always included. These are all some limitations of the national income accounts and their recording.

Chapter 16 question 5.

Frictional unemployment is a sign of the well-being of an economy that is growing with a flexible and adaptable labor force. It results from individuals who are between jobs or recent graduates what may be looking for employment. Frictional unemployment will always exist because it take time and effort for those new to the work force or those that are end between to find work. This type of unemployment in beneficial to workers because it allows them to search for jobs they really desire or fits their needs based off training or skills. For businesses, it benefits them because it allows competition with a pool of qualified skilled personnel to choose from to get the best worker possible. If you don't have frictional unemployment this would mean that people keep the same jobs for life which with limited movement or job enrichment.

"The fact that some people are unemployed