Ch. 13---Measuring the Economy

1. How Do Economists Measure the Size of an Economy?

1.1. The main measure of the size of a nation's economy is its gross domestic product. GDP is an economic indicator that measures a country's total economic output.

1.2. GDP - the market value of all final goods and services produced within a country during a given period of time.

1.3. The other way of calculating GDP is taking into account differences between countries due to purchasing power parity.

1.4. In calculating the impact of trade on GDP, economists focus on next exports--the value of all exports minus all imports.

1.5. Net Exports - the value of all exports minus all imports.

2. How Does the Business Cycle Relate to Economic Health?

2.1. The inflation rate is the percentage increase in the average price level of goods and services from one month to a year.

2.2. A period of economic growth is known as an expansion. Expansion - a period of economic growth.

2.3. A number of different obstacles to growth can push an economy into recession. They include: - a negative shock to the economy, such as rapidly rising oil prices, a terrorist attack, or a stock market crash. - a rise in interest rates, which makes it harder for consumers and firms to borrow money. - shortages of raw materials, which can cause price increases.

2.4. The business cycle consists of four phases. These phases include a period of growth and a period of decline, as well as the turning points that mark the shift from one period to the next.

3. What Does the Inflation Rate Reveal About an Economy's Health?

3.1. The German experience was proof, if any was needed, that runaway inflation can send an economy into a tailspin. That is why economists keep a close eye on a third economic indicator: the inflation right.

3.2. Inflation Rate - the percentage increase in the average price level of goods and services from one month or year to the next.

3.3. The cost of inflation: - Loss of purchasing powers - Cost of goods going up do not allow us to purchase as much - Standard of living declines

3.4. Economists at the BLS track changes in the cost of living using what is known as the consumer price index.

4. What Does the Unemployment Rate Tell Us About an Economy's Health?

4.1. The BLS (Bureau of Labor Statistics) is the agency that determines the unemployment rate the percentage of the labor force that is seeking work.

4.2. Unemployment Rate - the percentage of the labor force that is not employed but is actively seeking work.

4.3. Every month, the BLS reports the total number of people who were unemployed for the previous month. To arrive at this figure, the BLS does not attempt to count every job seeker in the country. Instead it conducts a sample survey each month. By examining a small but representative sample of the population, the BLS can gauge how many people in the entire population are unemployed.

4.4. Unemployment Rate = number unemployed/number in labor force x 100