Trident University International

Blake Bennett

ECO220

Module 3 Case

Dr. Paul McCaster

March 2020
 Introduction to Macroeconomics

Unemployment

Unemployment pertains to the condition of a person who does not have a career or job.

Individuals who do not want to work or resigned from employment are also given the

unemployment status. A person should not have work or employment for a duration of one

month before he/she will be considered unemployed (Greenlaw, 2014). Furthermore, there are

certain factors to be considered before considering individuals to be unemployed. Aside from

people who prefer not to work for a month, unemployed individuals also include people who are

still looking for employment for the last month.

On the other hand, full employment pertains to the economic status of a country in which

working capital is maximized to the fullest (Investopedia, 2018). Full employment is the state of

reaching the maximum number of capable, qualified and suitable individuals that can be given

employment anytime (Investopedia, 2018). However, full employment does not mean that all of

the capable people of an economy are employed. In addition, some of the people are in the

systematic or frictional employment sector even though they do not have a work or job

(Investopedia, 2018). In this light, it can be said that full employment signifies low

unemployment rate.

It is necessary to monitor and address unemployment rate especially when the population

and economic players spend too much since it has negative implication to the economic aspects

of the country. When the economy of the country is dominated by low-income workforce, lesser

taxes will be collected (Simpsons, 2017). Basically, taxes is the lifeblood of a nation. The

country depends upon the taxes collected from the taxpayers. Taxes are used in order to fund the

projects and programs of the government intended for the welfare and interest of the people.
Furthermore, taxes are fundamental to sustain the processes and operations of the government

and for the government to stimulate its economy. If the taxes collected by the government will

not be sufficient to sustain its expenditures and programs, it will have to apply for loans and

incur debts with high interest rates (Simpson, 2017). Aside from the negative impacts of low-

income workers in the tax revenues generation of the government, low-income earners will also

have difficulty in providing for their basic needs such as shelter, food and health. In this case, the

government will be allocating funds to improve the health care services and provide the right to

health of the marginalized individuals. In addition, unemployment may also lead to negative

economic impacts since economic activities and productivity will be reduced resulting to

downward GDP.

Poor living standards and quality will be the impacts of unemployment. Since

unemployed individuals will have no means to support their family, they will be deprived of

basic necessities. These individuals will also depend upon the assistance of the government.

Long duration of unemployment will mean that unemployed individuals will suffer from mental,

physical and psychological risks.

Consumer Price Index (CPI)

Consumer Price Index (CPI) is one the fundamental economic indicators. CPI pertains to

the essential product and facility expenditures such as transportation, medical care and

sustenance (Investopedia, 2018). Consumer Price Index is measured by overseeing price changes

and trend and connection with the proportional price of the commodities (Investopedia, 2018).

Consumer Price Index is essential in the analysis of price trends with the indication of cost of

living, deflation and inflation (Investopedia, 2018).

Economic growth can be measured by the median cost of services and products of the
country (Investopedia, 2018). Economic growth rate must be based on an economic trend, and

the longer the trend is, the more accurate the assessment will be. Meanwhile, inflation does not

only involve increase in the prices of commodities, but it also pertains to the movement of

market values (Greenlaw, 2014). Inflation rate is used to evaluate the decrease in the prices of

stocks and value of the currency of the economy.

Consumer Price Index adjustments can be used to measure inflation rate since it

highlights the market trends in relation to cost of living (Investopedia, 2018). However,

Maverick (2018) believes that there are inaccuracies in using the Consumer Price Index as an

indicator since it entails on figures showing that the volume of commodities purchased by the

public increases in price. Revulsion may occur if CPI will be used as an economic indicator to

measure inflation rate (Maverick, 2018).

Government Tax Revenue and Spending

Government expenditures include the spending of the government to fund its operations,

processes, projects and programs. There are different sources of government revenue. One of

which is the tax revenues or the taxes collected from the people. Taxes are the primary source of

funds of the government. Economic disruption may be experienced if the tax collection of the

government will fail. On the other hand, if the tax revenues and collection of the government will

be much higher than the expenditures, budget excess will occur. Hence, balanced budget is the

condition by which the government efficiently utilizes all the taxes collected.

The funds allocated for public security, interest remuneration, social security and

Medicare comprised 72% of government expenditures and engineering, infrastructure, local

development, health, government operations, research & development and employment

comprised 28% of government expenditures (Greenlaw, 2014). The government also allocates
funds for projects and intended for the people such as bookstores, schools, housing, health

institutions and fire services (Greenlaw, 2014). On the other hand, the state governments are also

given their own funds to be allocated to finance their state programs and projects. The state are

also given the freedom to carry out their own revenue generation efforts. If a state is suffering

from high unemployment rate and inflation, government intervention will be necessary and it

entails government funding and expenditures. If unemployment rate is high and inflation persists,

people tend to avoid spending and the profit of the private sectors will also decrease, which

would result to low tax collection of the government. Hence, the funds to be used by the

government to be allocated to its programs and policies will also be limited.

Gross Domestic Product (GDP) and Standard of Living

Gross Domestic Product pertains to the aggregate currency values of the economy’s

products and services within a certain period. It entails on the accumulated investment, revenues,

import and export and government expenditures. On the other hand, the standard of living is

measured through GDP per capita. It pertains to the quality of life of the people measured

through different aspects of the society. However, the underground economy is not included in

the measurement of GDP since the government has no means of measuring their economic

contributions. Underground economy does not only involve unlawful activities or trading outside

the commerce of men. Underground economy entails on concealed enterprises that do not pay

taxes to the government. The measurement of GDP is important to ascertain the economic status

of a country. It will also help the government in understanding the weaknesses and strengths of

its economic policies. Furthermore, it helps in analyzing market behavior and preferences of the

people and the impacts of market trends to the economic status of the country.
 References:

Amadeo, K. (2018). Standard of Living. The Balance. Retrieved from:

https://www.thebalance.com/standard-of-living-3305758
Greenlaw, S. A., Dodge, E., Gamez, C., Jauregui, A., Keenan, D., MacDonald, D., . . . OpenStax

College. (2014). Principles of macroeconomics (1st ed.). Houston, Texas: Openstax.

Investopedia. (2018a). Full Employment. Retrieved from:

https://www.investopedia.com/terms/f/fullemployment.asp

Investopedia. (2018b). Consumer Price Index – CPI. Retrieved from:

https://www.investopedia.com/terms/c/consumerpriceindex.asp

Investopedia. (2018c). Inflation. Retrieved from:

https://www.investopedia.com/terms/i/inflation.asp

Investopedia. (2018d). Gross Domestic Product-GDP. Retrieved from:

https://www.investopedia.com/terms/g/gdp.asp

Investopedia. (2018e). Limitations of GDP and Alternative Measures. Retrieved from:

https://www.investopedia.com/exam-guide/cfa-level-1/macroeconomics/limitations-gdp-

alternative.asp

Maverick, J.B. (2018). What are some limitations of the consumer price index (CPI)?

Investopedia. Retrieved from: https://www.investopedia.com/ask/answers/012915/what-

are-some-limitations-consumer-price-index-cpi.asp

Simpson, S.D. (2017). The Cost of Unemployment to the Economy. Investopedia. Retrieved

from: https://www.investopedia.com/financial-edge/0811/the-cost-of-unemployment-to-

the-economy.aspx