These are all short answer questions 

1. Write an overview of how the measurement of Gross Domestic Product (GDP) is based on the concept of the circular flow of income and expenditures. As part of your answer, make sure that you outline and explain the key details of both the expenditure approach and the income approach to the measurement of GDP.

Gross domestic product (GDP) is defined as being the market value of all final goods and services produced in an economy, during a given period (usually a year).

There are different ways of measuring GDP, but in practice our main focus tends to be on the expenditure approach, which looks at aggregate expenditures by four different groups: Households, Firms, Government and Foreigners.

GDP measures the total value of domestically produced final goods and services that are traded in the economy. It is also often used to compare different countries and to compare outcomes within a given country at different points in time. Yet, given how GDP is calculated, it is an imperfect measure for assessing national welfare and economic well-being. Based on this we need to take a closer look at some issues of measurement and interpretation of GDP across countries and across time. In particular, while GDP per capita is positively associated with several measures of well-being, it also omits and undervalues some goods and services, while also not considering some of the things that may have an adverse effect on economic well-being.

2. Using the concept of Say’s principle, discuss how failures for trades to proceed in one market may sometimes have repercussions in a series of other markets.

Say’s Principle is the simple idea that in bilateral voluntary trade each trading partner expects to receive quid pro quo for whatever they offer.

In this context, all income is earned by trading something of value and the reason people try to sell their resources and earn income in the first place, is specifically in order to buy things that are offered by others. If all trades were perfectly coordinated, then nobody would offer anything except those things that others would be willing to purchase at a mutually agreeable price. Of course, in the real world, we have gluts in a variety of markets. A glut in the labor market represents a failure of sellers of labor to sell what they are offering and this is what we call unemployment.

In practice, some attempted trades are not coordinated enough with the plans of prospective trading partners for trades to actually proceed. This is the key insight we get from thinking in terms of Say’s principle. It also reminds us that every attempted trade involves at least two trading partners. Moreover, a failure to come up with things of value that can be sold (remember, unemployment is a failure to sell labor) affects not just the prospective seller(for example the unemployed worker), but also all those who would have been affected by the income that never materialized. Thus unemployment also affects those who intended to sell things to unemployed workers who, now that they have less income, cannot purchase the things that they otherwise would have, etc.

If and when we fail to offer other things that they are willing to trade for, we also fail to be able to purchase whatever others are offering us in trade. This further suggests that all gluts (including unemployment) are based on coordination failures, or on failures to coordinate trades across the economy

Understanding this is key to understanding economic fluctuations and how they work.

3. Write a summary overview outlining how the Bureau of Labor Statistics (BLS) comes up with measures of labor force participation and unemployment for the US. As part of your answer, make sure that you discuss some of the causes of changes in both the labor force participation rate and also the unemployment rate over time.