Chapter 13 Outline

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Chapter 13 Outline by Mind Map: Chapter 13 Outline

1. How do economists measure the size of an economy?

1.1. GDP measures how much the economy produces.

1.2. GDP- The market value of all final goods produced within a country within a certain period of time.

1.3. Economists calculate GDP by measuring expenditures on goods and services produced in a country. They divide the economy into four sectors: households, businesses, government, and foreign trade.

1.4. FInal good- A final good is any new good that is ready for use by a consumer.

1.5. Market Value- The price buyers are willing to pay for a good or service in a competitive market

1.6. C + I + G + NX = GDP

1.7. How economists measure GDP

1.7.1. Economists typically calculate GDP by measuring expenditures on goods and services produced in a country.

1.8. Article URL

1.8.1. http://www.economist.com/blogs/freeexchange/2014/12/measuring-economic-development

1.8.2. Summary- There is no perfect way to measure the size of the economy, but the economists use GDP and a couple other ways to try to accurately measure the economy, and the health of it.

2. What does the unemployment rate tell us about an economy's health?

2.1. Unemployment rate- the percentage of the labor force that is seeking work.

2.2. The four types of unemployment are frictional unemployment, structural unemployment, seasonal unemployment, and cyclical unemployment.

2.2.1. In its interviews, the BLS gathers detailed information about people who are unemployed. Based on those data and further research, economists identify four types of unemployment: frictional, structural, seasonal, and cyclical.

2.3. How the government measures unemployment

2.3.1. The BLS reports the total number of people who were unemployed for the previous month. 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.

2.4. Natural rate of unemployment- the percentage of the labor force without work when the economy is at full employment; a condition in which the economy is strong and there is no cyclical unemployment] . This rate has varied historically, but has generally ranged between 4 and 6 percent.

3. What does the inflation rate reveal about an economy's health?

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

3.2. Tracking inflation with the Consumer Price Index

3.2.1. The BLS tracks inflation by gathering information on Americans’ cost of living. That is, it studies the cost of buying the goods and services that households like yours purchase every day. As you would expect, the cost of living changes all the time because prices do not stay the same.

3.3. Nominal cost of living- the cost in current dollars of all the basic goods and services needed by the average consumer

3.4. Real cost of living- the cost in constant dollars of all the basic goods and services needed by the average consumer; the nominal cost of living adjusted for inflation]

3.5. Demand Pull vs. Cost Push Inflation

3.5.1. You are already familiar with one cause of inflation: an increase in the money supply. A dramatic increase in the amount of money in circulation can cause hyperinflation. But even a more modest increase may trigger inflation if the result is too many dollars chasing too few goods.

3.6. The Economic Cost of Inflation

3.6.1. Between 2000 and 2012, the annual rate of inflation in the United States ranged from a low of -0.4 percent to a high of 3.8 percent. Whether inflation at these relatively low levels is “healthy” for the economy is open to debate. However, we do know that inflation of any amount exacts economic costs. Loss of purchasing power. Inflation erodes purchasing power—the amount of goods and services that can be bought with a given amount of money. As a result, it undermines one of the basic functions of money: its use as a store of value.

4. How does the business cycle relate to economic health?

4.1. Business cycle- A recurring pattern of growth and decline in economic activity over time

4.2. The four phases of the business cycle are expansion, peak, contraction, trough

4.3. During the expasion and peak phases, the economy is growing, unemployment is falling, and the health of the economy is increasing

4.4. During the contraction and trough phases, the economy is shrinking, unemployment is increasing, and the health of the economy is decreasing.

4.5. Recession- a period of declining national economic activity, usually measured as a decrease in GDP for at least two consecutive quarters (six months)

5. Measuring the economy