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Chapter 13 by Mind Map: Chapter 13

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

1.1. 1. They can study the economic decision making of individuals, households, and firms, or the economy as a whole (microeconomics or macroeconomics)

1.2. 2. 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.

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

1.3.1. They divide the economy into four sectors: households, businesses, government, and foreign trade.

1.4. 4. As a country’s per capita GDP increases, so too do other indicators of well-being. Economists also use GDP to compare the economies of individual countries. And to figure out if they are growing or shrinking

1.5. Terms:

1.5.1. gross domestic product the market value of all final goods and services produced within a country during a given period of time

1.5.2. Nominal GDP a measure of a country’s economic output (GDP) valued in current dollars

1.5.3. Real GDP a measure of a country’s economic output (GDP) valued in constant dollars

1.5.4. Per capita GD a nation’s real GDP divided by its population; a measure of average economic output per person

1.5.5. informal economy a sector of the economy that operates without government regulation or monitoring and is not officially recorded or taxed; the informal economy is not included in the calculation of GDP

2. What Does the Unemployment Rate Tell Us About an Economy’s Health?

2.1. 1. Like the GDP, the unemployment rate is a useful indicator of the health of an economy. In general, a high unemployment rate means the overall health of the economy is poor

2.2. 2. Every month, the BLS reports the total number of people who were unemployed for the previous month

2.3. 3. Economists identify four types of unemployment: frictional, structural, seasonal, and cyclical.

2.4. 4. In determining how many of the country’s more than 315 million people are unemployed, the BLS makes every effort to be accurate.

2.5. Terms:

2.5.1. unemployment rate the percentage of the labor force that is not employed but is actively seeking work

2.5.2. natural rate of unemployment the percentage of the labor force without work when the economy is at full employment

2.5.3. underground economy a sector of the economy based on illegal activities, such as drug dealing and unlawful gambling

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

3.1. 1. The BLS tracks inflation by gathering information on Americans’ cost of living.

3.2. 2. In the United States we have come to expect a certain amount of gradual inflation, or creeping inflation, every year. Occasionally inflation goes into overdrive. The result is hyperinflation.

3.3. 3. Causes of inflation:

3.3.1. an increase in the money supply.

3.3.2. an increase in overall demand

3.3.3. increases in the cost of the factors of production.

3.4. 4. The BLS relies on the consumer price index to estimate the level of inflation in the United States each month. However, critics point to several biases that may distort the CPI, making the reported inflation rate less than accurate. The CPI measures the price changes of a fixed list of goods, it does not take into account consumers’ ability to substitute goods in response to price changes. and is slow to reflect changing trends in shopping patterns.

3.5. Terms:

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

3.5.2. consumer price index CPI)a measure of price changes in consumer goods and services over time; the CPI shows changes in the cost of living from year to year

3.5.3. creeping inflation a gradual, steady rise in the price of goods and services over time

3.5.4. deflation a fall in the price of goods and services; the opposite of inflation

3.5.5. demand-pull inflation a rise in the price of goods and services caused by an increase in overall demand

3.5.6. cost-push inflation a rise in the price of goods and services caused by increases in the cost of the factors of production

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

4.1. The Business cycle

4.1.1. Its a recurring pattern of change as an economy expands and contracts. During an expansion, economic activity increases until it peaks and can grow no more. During the contraction that follows, economic activity slows until it sinks into a trough and begins to turn around.

4.2. 1. The business cycle consists of four phases

4.2.1. a. A period of economic growth is known as an expansion

4.2.2. b. The point at which an expansion ends marks the peak of the business cycle

4.2.3. c. Following the peak comes the contraction phase of the business cycle

4.2.4. d. The lowest point of a contraction is called the troug

4.3. 2. Business cycles are irregular in both length and severity. This makes peaks and troughs difficult to predict. Nonetheless, economists attempt to do just that, using a variety of economic indicators.

4.4. 3. Business cycles are popularly known as periods of boom and bust. A boom is the expansion phase of the cycle. But inevitably, boom turns to bust. The bust, or contract-ion phase of the business cycle, is also called a downturn, a downswing, or a recession.

4.5. 4. On rare occasions, a recession will last a long time and cause serious damage to the economy. Economists refer to this kind of severe contraction as a depression.

4.6. Terms:

4.6.1. business cycle a recurring pattern of growth and decline in economic activity over time

4.6.2. expansion a period of economic growth

4.6.3. peak & trough the highest and lowest point of an expansion, or period of economic growth; a peak is followed by economic decline

4.6.4. contraction a period of general economic decline marked by falling GDP and rising unemployment

4.6.5. leading economic indicators measures that consistently rise or fall several months before an expansion or a contraction begins

4.6.6. coincident indicators measures that consistently rise or fall along with expansions or contractions.

4.6.7. lagging economic indicators measures that consistently rise or fall several months after an expansion or contraction begins

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

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