Economy Moves in Cycles. There Term Paper

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The unemployment rate for January 2013 was 7.9%, in December it was 7.8%, this appears to be a deterioration; however, it is usual for unemployment to increase in January as seasonal jobs disappear. Looking at the rate in January 2012 it was 8.3% and in January 2010 it was 9.1%, therefore unemployment rates are decreasing slowly (BLS, 2013). The consumer prices index also shows an increase; in 2012 it rose by 1.6%. Overall, there is an improvement, from a time that has been defined as a recession, the growth is slow and constrained, but expected to improve further, therefore the current economic stage is that of a recovery, or early recovery.

Question 2

The traditional method of assessing the economic growth is by measuring the GDP, with the underlying assumption that where there is growth in the GDP there will be an increase in welfare, with the measure usually being the GDP per capita. The basic idea is that when an economy is growing there will be benefits to all segments of that economy; the increase will result in increasing wages and increasing taxes. The theory of the multiplier effect and the trickle down effect are also assumed to increase welfare throughout a society, even if not all members are able to benefit proportionately.

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The benefit is also believed to occur as the increased government income may then be used to increase the welfare of citizens, supporting spending on areas such as healthcare and education, which have a direct impact on welfare.

The problem with the assumption is that it may not always be correct. Economic growth is not always equally spread across a society, for example, looking at the growth seen in China in recent years it is focused on the industrial regions, while the rural farmers are seeing little real growth or welfare. The issue is not only that of growth, but where the growth is taking place and the way it is distributed in an economy. The GDP is a single measure; it is an easy to use measure which is perceived as objective, all of which make it attractive to statisticians and economists. However, from a social perspective it does not reflect the distribution of the wealth or any improvements in welfare; only that the output has increased.

There are alternate approaches that may be used instead of GDP to assess a nation, which are likely to give a more accurate indication of the welfare of the citizens. One measure is the index of sustainable economic welfare (ISEW) developed by.....

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