Academic Term Email ID the National Income

Academic Term

Email ID

The National Income Account of any country is used as a system of book keeping whereby the government records the extent to which the country grows in economic terms within a specified time frame. The National Income account is used as a reflection of the standard of living of the people of the country and to depict how developed and economically advanced the country really is but it can be questioned to be the authentic measure to analyze the level of the standard of living of the people. This is due to various limitations of the account.

The first limitation that can be drawn is the fact that although the National Income Account measures the level of Gross Domestic Product (GDP) in a country, it does not account for the differences and the distribution of the income. It gives us an overall picture of the average earnings of the member citizen of the country but realistically speaking, there are various class divisions in any country and not everyone earns the same amount of money. There are also certain sources of income and some inflows of money that are not accounted for in the national income account such as the black markets which are not considered a legal form of business. This money is however not reflected in the official accounts which mean that this kind of income is not recorded and so we cannot be sure of the exact living standards of the people who earn money from these sources. There are other sources of income too that are not recorded as the official earnings such as the young students who might earn money by babysitting, free lancing or doing extra chores for people which pays them but this is not considered an official earnings and is not even recorded in any way. The account also ignores the externalities occurring. The costs and the benefits that people get or incur are ignored on the whole (Ruggles, 1956).

Lastly, the national income account ignores the inflation that might have occurred over the year. It simply shows the income and the GDP increase or decrease but that does not necessarily mean that the increase can be due to increase in standards of living, instead it might be reflecting the devaluation of money and increase in the rate of inflation.

Chapter 16, Question 5

Frictional Unemployment is also termed as voluntary unemployment or search unemployment which basically is the position where a person is temporarily unemployed due to the search of a better job. This is the time frame that the person experiences between leaving one job and finding another job. This kind of unemployment is not necessarily bad for the economy and can actually prove to be quite beneficial as it enables a cycle of demand and supply of employment for the people. Sometimes a person might take up a job that is not necessarily of his or her interests, only to enter the job market and may want to switch later on. This will create space for another employee that might be in the search of a job that was not suitable for someone else's career. Every employee's offerings and capabilities differ and they are able to adapt to different kinds of job environments so this forms kind of a rotation in the market (Cencini, 1996).

A job might prove to be quite challenging for one person according to the work level, the hours, rates and travel but it might not be so bad for any other employee. This rotation also ensures that people keep changing their skills and go on to seek for better prospects. This ensures that there is no stagnancy in the job market. An employee might eventually get bored of a job and would want to seek for different kinds of work which opens way for someone else to be hired at the previous job. This frictional unemployment also plays a role in dealing with the imbalance in supply and demand of the jobs and workers. One kind of job might have more openings for employees but the supply of employees might not be enough while on the other hand, another job might have it the other way round. The frictional unemployment also makes way for better people to be hired by the companies and the ability to select the best suitable people for the job. New talent and new skills and ideas are brought up and polished in this way. A person might find the job fruitful and enriching which he might not have considered at first.

Chapter 25, Question 7

Every open economy in the world engages in trade because no economy is self sufficient which calls for the need of specialization and competitive advantage. Countries engage in this process of exchange to offer what they produce best to other countries in return for something they have a competitive advantage. Similarly, the United States is also one of the world's most established economies that indulge in trade. It trades with other countries as well as the internal states.