REPORT Title: GDP, Unemployment and Inflation Course Code: BAHU1043 Course: Pakistan Today (C) Course Instructor: Bilal Ilahi Semester: Fall 2023 (2ND Semester) Presented by: Hadia Ahmed (L) L1S23BBAM0034 Syeda Bakhtawar L1S23BBAM0052 Zaid Nisar L1S23BBAM0324 Hamza Zia L1S23BBAM0149 Gross Domestic Product (GDP) It is the sum total of all the goods and services produced in a country within one fiscal year. The GDP of a country determines its economic health and serves to be the basis for all consequent monetary policies and investment decisions. GDP Inflation Unemployment Calculating GDP The GDP of a country is composed of its total consumption, government spending, investment and net exports (value of exports – value of imports). GDP is classified into four types; Nominal, Real, Actual and Potential. GDP can be calculated as Nominal and Real. The only distinction between these is that Real GDP is adjusted for inflation and GDP = C + G + I + (X – is slightly lesser whereas Nominal reflects the raw numbers. Most M) commonly, the ‘output method’ is used to calculate GDP as is depicted in the following equation. C = consumption G = government spending I = investment X = exports M = imports Importance of GDP GDP is crucial to measure the economic health and gauge the performance of a country; in addition to that, it aids governments in preplanning and forecasting for future economic policies. A good GDP generates revenue, attracts foreign investment, creates employment and establishes the country as prosperous and economically stable. Inflation Inflation measures the rate of rising prices of goods and services in an economy. In the simplest of terms, Inflation occurs when the basic price of goods and services rises over a set period of time. It can be classified commonly into three types; Demand-pull: the high demand for a specific product in less supply makes firms raise their prices. Cost-push: a high production cost equals higher price of the finished product. Built-in: the increase in prices calls for a firm to increase wages for employees to maintain livelihood. In addition to these, inflation is primarily boosted by the subsequent wage-price spiral, fiscal deficits, inefficient monetary policies and currency depreciation. Impact of Inflation The consequences of inflation are shared mutually by the ordinary citizen and government. For an individual is the reduced purchasing power, interrupted financial plans, depleting savings, high cost of livelihood coupled with the uncertainty, fear and hysteria. Whereas, the government suffers as increased inflation can potentially hinder GDP growth and thereby reduce tax revenues and encourage borrowing, which would be equally straining on the economy with the inflation-fueled high interest rates. Unemployment Unemployment refers to the state of individuals who are actively seeking employment but are futile in securing it. Unemployment runs free due to the alarming rate of automation and technological advancement, economic recession – firms may cut down on hiring new employees and may dismiss existing employees; globalization, demographic conditions i.e., ageing workforce, increased population etc., unfair labor policies i.e., minimum wages, strict laws. For an individual, unemployment erodes their purchasing power and standard of life, it lowers their morale and boosts their frustration and can inadvertently lead to terrorism and criminal activity, which can significantly alter the repute of that country. GDP and Unemployment Unemployment is a menace for any economy, the lack of productivity and failure of labor leads to a lowered tax revenue, reduced GDP and then, less investment in the country. Furthermore, GDP is composed chiefly of consumer spending and if the consumers themselves are unemployed and lack purchasing power, they’ll spend less and thus, bring down the GDP. Inflation and Unemployment In the 1950s, A.W. Phillips deduced that Inflation and Unemployment have a stable, inverse relationship. It was and is eminent in history that lower unemployment was due to high inflation and vice versa. This can be depicted through the Phillips Curve. References 1. Thangavelu, P. (2019). How to Calculate the GDP of a Country. Retrieved from Investopedia website: https://www.investopedia.com/articles/investing/051415/how-calculategdp-country.asp 2. Vipond, T. (2019, December 3). Nominal GDP vs. Real GDP. Retrieved from Corporate Finance Institute website: https://corporatefinanceinstitute.com/resources/economics/nominal-rea l-gdp/ 3. Boyle, M. (2021, December 2). Know What Causes Inflation and Who Profits from it. Retrieved from Investopedia website: https://www.investopedia.com/ask/answers/111314/what-causes-inflati on-and-does-anyone-gain-it.asp 4. tutor2u. (2020, December 20). Benefits and Costs of High Inflation for a…. Retrieved from tutor2u website: https://www.tutor2u.net/economics/reference/benefits-and-costs-of-hig h-inflation-for-a-government#:~:text=High%20inflation%20can%20cause %20GDP 5. Picardo, E. (2020, September 24). How The Unemployment Rate Affects Everybody. Retrieved from Investopedia website: https://www.investopedia.com/articles/economics/10/unemployment-r ate-get-real.asp
