Chapter 13 measuring the economy

1. 13.2 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 or GDP

1.2. GDP is based on the market price of every final good or services

1.3. economist also use GDP to compare the economies of individual countries

1.4. market value- the price buyer are willing to pay for good or service in a competitive marketplace

1.5. GDP ( gross domestic product)- the market value of all final goods services produced within a country during a given period of time

2. 13.3 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. natural rate of unemployment- this rate had varied historically but has generally ranged between 4 and 6 percent

2.3. when an economy is healthy and growing it experiences little cyclical unemployment

2.4. there will always be some frictional seasonal and structural unemployment

2.5. despite its flaws the official unemployment rate serves as a fairly good indicator of conditions in the labor market and in general when the rate is high the overall health of the economy is poor

3. 13.4 what does the inflation rate reveal about an economy's health

3.1. in an ideal world prices would be stable neither rising nor falling over time in our real world prices are always changing

3.2. a dramatic increase in the amount of money in circulation can cause hyperinflation

3.3. The inflation rate- percentage increase in the average price level goods and services from one moth or year to the next

3.4. price index- measures the average change in price of a type of good over time

4. 13.5 how does the business cycle relate to economic health

4.1. a depression- a prolonged economic downturn characterized by plunging real GDP and extremely high unemployment

4.2. expansion - a period of economic growth

4.3. the term business cycle implies that expansions and contraction occur at regular predictable intervals

4.4. the business cycle consists of four phases these phases include a period of growth and period of decline as well as the turning points that mark the shift from one period to the next ( expansion, peak, contraction, and trough)

4.5. business cycle- recurring periods of growth and decline in economic activity that all economies experience