Economics Essay Questions and Answer

1. If you had to pick one measure to use to gauge the general standard of living of the American people, what would it be?

If I had to select one measure to gauge the general standard of living, I would like to choose the Human Development Index (HDI). HDI was proposed by the United Nations in the 1990s to identify the standard of living. Later, this index was used in the United States, Canada, and other developed countries. HDI provides the general perspective of how well people live. It uses three main indicators which are life expectancy, the level of education including adult literacy, and the standard of living measured by the differences between prices and GDP per capita.

The biggest advantage of this measure is a general observation of the entire situation in the country. One receives a full picture which includes main issues, such as life expectancy, education, and well-being. These three key points predetermine the welfare of the whole nation. Poor development of any of them leads to an imbalance in the standard of living.

Despite the significant advantages of this measure, it also has some disadvantages. For instance, a general observation does not provide detailed information about a particular aspect. It analyzes indicators as the result, but not as a cause. If one compares HDI with the Index of Social Health (ISH), he/she will conclude that the latter provides detailed statistics about the health state in the country. This survey includes those changes that occur in social health and measures how they influence people’s well-being. However, this measure provides information only about social health and does not include any other sources that may impact the standard of living. According to this fact, HDI embraces more factors that affect the standard of living. Thus, this measure is more acceptable than others which specify only one particular aspect.

2. Provide an example of how inflation has (or may in the future) impacted your life.

Increasing the inflation rate leads to an imbalance between the GDP and prices. In other words, the cost of money that people earn becomes lower, while the prices increase. Basically, goods and services become more expensive, but the salary increase is not sufficient enough to cover this difference. For instance, the annual salary increase should be at least 2.5 – 3% to cope with the inflation rate. This indicator is the minimal level of the salary increase that a company should provide to its employees. In other words, if one receives an increase in salary of 3% every year, he/she receives no additional bonuses from the company because the prices of goods and services also increase at the same rate.

Hence, a person will really receive additional money from the company where he/she work, if the rate of salary increase is at least 5%. However, only the biggest companies provide 5-6% of the salary increase annually. On average, people who work in governmental institutions receive a 2.8 -3.2% increase every year. People who are considered to be the lower class or low cast of the middle class receive little salary increases which are about 1.7 – 2% or sometimes receive no increase.

According to this fact, the rate of inflation has a different impact on the standard of life for various people. Some of them do not face any significant changes, while others may face a lack of money in the nearest future because the money they earn cannot cover all of their spendings. Hence, the impact of inflation on my life is hard to predetermine, because it depends on the company where I will work and my annual salary increase. However, if I take into account the average indicator, then I can state that inflation will not have a significant impact on my life, though I will also not receive any real increase in my salary.

3. How might the continual improvement in technology affect the nation's unemployment situation?

The 21st-century technological progress has a lot in common with the industrial revolution of the 19th century. In both cases, technologies have simplified and improved the manufacturing process. Indeed, it was a real advantage, because work performance increased by several times, the quality of products also became much better, and the manufacturer’s spending on employees has decreased significantly. As a result, some manufacturers received an increase of their profit equal to 400%. However, people who used to work in the manufacturing plants lost their jobs, because production became automatic and required minimal usage of human force.

I perceive the economy of computerization as the same revolution of the 21st century. The continual improvement will lead to significant changes in productivity, but human assistance will be reduced. As a result, many people will be unemployed because there will be no necessity to have a great number of employees to control the processes. For instance, if the company has 100 employees and pays about 40,000 dollars to each of them, then after significant computerization, the company will keep the 10 best employees to do this work. Moreover, there might be no salary increases, because the high level of unemployment rate will allow hiring highly qualified employees for lower wages.

According to this fact, it can be concluded that the computerization of technologies is a significant step forward because it leads to improvement of the quality and requires less assistance. However, the issue of employment is still unclear. The majority of people will not work at the same places, even those who are considered to be the experts in their fields.

4. Why is a growing economy generally considered important to the economic well-being of a nation?

Economic growth is an increase in the prices of goods and services in the market. GDP has a direct connection with this phenomenon because the growth of prices leads to an increase in spending. Hence, if the prices increase, but GDP does not have a similar growth reaction, the well-being of the nation is going to deteriorate. The well-being of a nation depends on such factors as the inflation rate, salary increase, and prices. If these components progress abnormally, it may lead to changes in the nation’s well-being.

The high level of inflation causes the depreciation of the currency. In other words, people may receive a salary which will be 20% higher than two years ago, but the prices may have increased by 50%. In fact, people do not receive more money. On the contrary, their salaries decrease almost twice.

As a result, a nation experiences financial difficulties, because people cannot buy products and pay for services as they did before. The misbalance between the economy of the country and these indicators leads to the declining standards of living and wellbeing of the entire nation. According to this fact, economic growth should develop equally to the market demands. Moreover, economic growth predetermines such aspects as general social and economic satisfaction.

To sum up, the role of economic growth in the well-being of a nation predetermines the nation’s ability to pay for services and goods which it requires. If this indicator is low or this opportunity is available only to the particular social group, I can state that the general wellbeing of the nation is low.

5. Is GDP necessarily the best indicator of a growing economy?

GDP is one of the best indicators of the growing economy because it predetermines the balance between production and gross values. This indicator is usually used to define the economic performance of the entire region or country. Moreover, it also includes the contribution of any industry sector and impacts the country’s economy.

GDP includes three major elements. They are government spending, consumer spending, and investment by businesses. According to this fact, the economy of a country depends on the GDP rate. Thus, the introduced elements predetermine the economy’s growth. In other words, GDP presents the nation’s income and output during a certain period of time. The shifts in these indicators lead to changes in economic development. For instance, if government spending satisfies the people’s requests, GDP will have a positive rate. On the other hand, if the government spending is low and the total business investments are reduced, GDP will be lower than it was before.

According to this fact, it can be concluded that GDP consists of numerous indicators that shape the current state of the country’s economy. However, it is better to observe GDP as the general indicator of economic growth because its components are interconnected and impact each other. For instance, government expenditures are the amount of money that government spends on paying military salaries, building roads, and maintaining monuments. Hence, the more government spends on these demands and necessities, the wealthier the economy is. If the economy of a particular country is experiencing a downturn, the government cannot spend much money on these demands because there are other more important issues, such as social security spending or health insurance. Thus, it is useful to perceive GDP as the general indicator of economic growth because it reflects the shifts of economic aspects.

6. Are Americans better off today than they were 10 years ago?

The level of well-being today cannot be assessed only from one side. One can outline significant positive changes that occurred during the last ten years, but there were also negative occurrences that took place. The standard of life has improved and this point can be marked as a positive change. On one hand, economic growth created new opportunities for business development. On the other hand, one should admit that the level of inflation has increased. Even though technological progress improved work performance, it hurts the unemployment rate. People are required to have specific skills and knowledge if they want to work in a particular company. Technological progress decreases the amount of workforce. Hence, there is no such necessity in the labor force, because manufacturing becomes more computerized. According to this fact, there is a bigger demand for intellectually skilled employees rather than in the labor force. Unfortunately, education is quite expensive, and thus, college studies are not affordable for everyone.

From the social point of view, one can outline a significant gap between social classes which is the result of rapid economic development. In fact, some people earn 40,000 dollars and more, and those who have only about 15,000 dollars annually. This difference is caused by the demand for highly qualified employees. Hence, the well-being of a particular American person does not always correspond to the well-being of the entire nation. The result is that the nation becomes wealthier, but the distribution of sources is not equal. Some people earn much, while others receive small salaries. In fact, the middle class becomes smaller, while the growth of the upper and lower class is noticeable.