 For the term paper students will choose an article related to any of the topics we have covered in the online coursework. The articles could be found on msnbc.com, nytimes.com, economist.com., cnn.

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Course : Principles of Macroeconomics Course Section: 2301 The Original Article Title: A focus on GDP determines the strength of America’s recovery Author: The Economist Group Limited American GDP and GDI Under the article “A focus on GDP determines the strength of American’s recovery” we can find a different measuring tool apart from the standard gross domestic product ( GDP) to evaluate the state of a n economy at a given timefra me. The article demonstrates that the GDP’s accuracy is questioned because of gaps that occur between the GDP and the gross domestic income (GDI ), which is any money earned by means of goods and services. Overall, the gap betwee n GDI a nd GDP, or statistical discrepanc y, should be close but not perfectly aligned, if it is not the case, then the health of the economy would differ depending on the precision of either the GDP or the GDI . The article presents the COVID-19 pandemic, and if the GDP was accurate, its “economic output is still about 2% below its pre-pandemic trend,” signifying a more challenging path towards recovery; however, if the GDI was accurate, “the economy is 1.2% above trend,” signifying a greater advantage towards economic recover y. This shows that using the GDP alone cannot accurately demonstrate a n economic state or outcome Nevertheless, splitting the GDP and the GDI and finding its average, or gross domestic output (GDO), would increase the accurac y . GDO reduces the distance of statistical discrepancy in the inaccuracy of b oth GDP and GDI. For example, the article states that the GDP may be affected since “an undercounting of business investment i n GDP may be the most likely cause.” Another possibility could be that the GDI was miscalculated to be greater than its actual evaluation. For instance , many individuals would “reflect the prices of existing assets rather than production of new ones” and would later integra te capital gains into their income, but in realit y , capital gains do not account for GDI computations. Furthermore, since the GDP and th e GDI are accumula ted from different independent estimate s of output, the GDO has been found to greatly decrease measurement errors and a high prognosticator in distinction to GDP. Although GDO seems to be the most accurate a nd favorable solution, many individuals also see GDI calculations to be a favora ble alternative as well . The reasoning behind it is that GDI alone has claimed to be more precise in registering variations in the business cycle, and it has bee n more consistent with inflation than GDP. However, a problem with usi ng GDI is that its estimate appea rs afte r GDP Page 2 Name: Eduardo Lopez Course: Principles of Macroeconomics Course Section: 2301 Article Title: A focus on GDP determines the strength of America’s recovery Arthur: The Economist Group Limited estimates. In the end, many economists and researchers are hoping to establish a more accurate GDP or “true GDP ” that is derived from GDP , GDI , several unemployment rates, and working hours in manufacturing. Throughout the article, I agreed to an extent on the fact that GDP shouldn’t be the onl y medium in which individuals should understand an economic state; however, I disagree that we should not acknowledge its capabilities. Apart from the GDP , I agree that GDO and GDI would be potential alternatives. . Nevertheless, these options should be mainly use d for future references on the economy. GDO would be a suitable alternative since it would decrease statistical discrepancy and increase the accuracy as a result of the combination of GDP and GDI . GDI would also be a viable alternative since it ex presses how much earnings are being accumulated from the GDP to create accurate data from many fluctuating scenarios. Even though GDP may be ranked lower regarding economic health prognostication, it should not be dismissed from its uses. Personally, GDP should only be used to calculate the economic size at that given moment, and decisions should be based on this data. A notable example would be the GDP per Capita. This is essential to economic stability since the GDP per capita calculates the contribution that each individual provides towards the GDP , which can be used as a reference to the different social classes established in the country, and theref ore decisions could be made concerning a specific social class. In the end, a combination of GDP , GDI , GDO , and other alternatives would seem to be the best course of action since each alternative could be used separately for different purposes, like impor ts and exports, market values, or investments. But the main issue at hand is time. The time in calculating each economic analysis or a time where only one of the many alternatives can be relied on. For this reason, economists and scientists should keep sea rching for a “true GDP ." This by itself should be a social responsibility since its finding would be used during any scenario and still be accurate. Nevertheless, I believe that a “true GDP ” might not be as efficient to calculate as GDP or GDI , but its abu ndance of aid under a state in which GDP or GDI has not been calculated yet would be extraordinary. Page 3 Name: Eduardo Lopez Course: Principles of Macroeconomics Course Section: 2301 Article Title: A focus on GDP determines the strength of America’s recovery Arthur: The Economist Group Limited References The Economist Newspaper. (2022, June 9). A focus on GDP understates the strength of America's recovery . The Economist. Retrieved June 26, 2022, f rom https://www.economist.com/finance -and -economics/2022/06/09/a -focus -on -gdp - understates -the -strength -of-americas -recover y Page 4 Name: Eduardo Lopez Course: Principles of Macroeconomics Course Section: 2301 Article Title: A focus on GDP determines the strength of America’s recovery Arthur: The Economist Group Limited A focus on GDP understates the strength of America’s recovery A focus on GDP understates the strength of America’s recovery | The Econom ist Gross domestic income, a close cousin, paints a far rosier pi cture =t is fashionable in some circles to lament the “cult of gross domestic product”. The pursuit of growth, this criticism goes, blinds officials to less quantifiable but worthier objectives, be it a contented population or a clean environment. For ma ny economists, the concern about GDP is very different. They see huge value in the core mission of the measure: namely, to provide as timely and accurate a snapshot of the state of the economy as possible, a lodestar for governments setting policies and fo r companies making decisions. Their criticism instead is that GDP occasionally struggles to achieve this, and that better alternatives might exist. Page 5 Name: Eduardo Lopez Course: Principles of Macroeconomics Course Section: 2301 Article Title: A focus on GDP determines the strength of America’s recovery Arthur: The Economist Group Limited This debate has again come to the fore in America because of an unprecedented gap between GDP and its close relative, gross domestic income ( GD= ). =n theory the two ought to be aligned. GDP tracks all expenditure in the economy, summing up the market value of consumption, investment, government spending and net exports in a specific period. GD= tracks the earnin gs associated with that expenditure, summing up wages, profits and any other income. =n reality the two never match up perfectly, since the long -suffering bean -counters in statistical agencies must draw on different sources, released at different times, to tot them up. The gap between GD= and GDP (officially known as “the statistical discrepancy”) is typically about 1%. Since late 2020, however, the discrepancy has been much larger. =n the first quarter of this year America’s GD= was fully 3.5% larger than its GDP . That is much more than a roundin g error. As Ben :arris and Neil Mehrotra of the Treasury Department wrote on May 26th, when the latest GD= data were released, it results in remarkably different pictures of the economy. =f GDP is the better reflection of reality, economic output is still about 2% below its pre -pandemic trend. =f GD= is accurate, the economy is 1.2% above trend, a far stronger recovery. One approach to reconciling GDP and GD= is just to split the difference. =n 2015 the Council of Economic Advisers in Barack Obama’s White :ouse laid out the case for doing so, calling the average the “gross domestic output” ( GDO ). The crucial point is that both GDP and GD= derive from entirely independent gauges of output. Combining them should, on average, reduce measurement errors. M r Obama’s advisers found that GDO was an excellent predictor of Page 6 Name: Eduardo Lopez Course: Principles of Macroeconomics Course Section: 2301 Article Title: A focus on GDP determines the strength of America’s recovery Arthur: The Economist Group Limited later revisions to GDP . For instance, when GDO growth is half a percentage point faster than GDP growth, it is associated with a subsequent upward revision to GDP growth by roughly half a perc entage point. This observation is slowly creeping into mainstream thinking. The Bureau of Economic Analysis has started publishing the simple average of GDP and GD= , though few journalists or analysts bother to mention it in their reports. Accounting for t he huge discrepancy at present is somewhat trickier. A useful starting point is the observation that the GD= -GDP gap opened up at the height of the covid -19 pandemic as the government’s stimulus flowed into the economy. The sudden infusion of cash through transfers to households and loans to businesses appears to have messed up conventional measures of economic activity. Corporate profits have been uncharacteristically strong, explaining the vigour in GD= . =n principle that should have been mirrored in much more robust GDP readings, too. Matthew Klein, the author of “The Overshoot”, an economics newsletter (and who worked at The Economist a decade ago), reckons that an undercounting of business investment in GDP may be the most likely cause. Statisticians ha ve struggled to keep tabs on all the newfangled ways that companies spend money, from software to cloud computing. During the pandemic entire business models were upended to accommodate online shopping and remote working; it stands to reason that investmen t data may have failed to capture such spending. Page 7 Name: Eduardo Lopez Course: Principles of Macroeconomics Course Section: 2301 Article Title: A focus on GDP determines the strength of America’s recovery Arthur: The Economist Group Limited Another possibility, running in the opposite direction, is that incomes have been overstated. Some people and even businesses may have mistakenly inflated their incomes, at least in a statistical sense. Dea n Baker of the Centre for Economic and Policy Research, a left - leaning think -tank, noted back in 2011 that there was a correlation between asset bubbles and GD= . When the stockmarket soars, as it did during much of 2020 and 2021, GD= tends to outstrip GDP . Capital gains are not supposed to count as income in GDP calculations, as they reflect the prices of existing assets rather than production of new ones. But the pattern suggests that people sometimes may misreport capital gains as ordinary income. Nerds to the rescue The uncertainty about whether to blame the discrepancy on undercounted business investment or overstated income does seem to argue in favour of the simple GD= -GDP average as a measure of economic output. That, however, is not entirely satisfa ctory. =n a paper in 2010, Heremy Nalewaik, then an economist with the Federal Reserve, showed that GD= was generally closer to the mark than GDP in registering fluctuations in the business cycle. =t did a better job of documenting the true extent of the d ownturn in 2007 -09. Moreover, its outperformance relative to GDP over the past two years is also more consistent with the run -up in inflation. Policymakers who had paid more attention to GD= may have become more concerned sooner about economic overheating. Page 8 Name: Eduardo Lopez Course: Principles of Macroeconomics Course Section: 2301 Article Title: A focus on GDP determines the strength of America’s recovery Arthur: The Economist Group Limited Frustratingly, initial GD= estimates come out a month after the first GDP figures. But researchers are on the case. =n a paper published in Hanuary by the Cleveland Fed, economists pulled together GDP , GD= and a basket of monthly indicators such as the u nemployment rate and average hours worked in manufacturing. The result, they hope, is something closer to “true GDP ” that can be updated on a monthly basis. Encouragingly, it performed well in documenting the recovery from the pandemic. =f it proves itself over time, it will be one more in a dizzying array of indicators to keep track of. But the message is clear: a focus on conventional GDP alone is unduly restrictive at best, and misleading at worst.