Measuring Economy

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

1.1. Tracking Inflation with the Consumer Price Index: The BLS tracks inflation by gathering information on Americans' cost of living Adjusting for Inflation: Normal vs. Real Cost of Living: Normal- basic goods and services adjusted for inflation Real- comparing prices over time Creeping Inflation: Us has come to expect a certain amount of gradual inflation Demand-Pull vs. Cost-Push Inflation: increase in money supply, overall demand, factors of production, feedback loop

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

2.1. Four Phases of the Business Cycle: 1.Expansion, 2. Peak, 3. Contraction, 4. Trough Economic Indicators and the Business Cycle: Irregular in both length and severity tough to predict From Boom to Bust to Boom Again: Business cycles are popularly known as periods of boom and bust. Boom vs. Bust: Boom- expansion phase, Bust- contract-ion phase (downturn)

3. Key terms

3.1. Gross Domestic Product- market value of all final goods and services produced within a country during a given period of time Market Value- the price buyers are willing to pay for a good or service in a competitive marketplace Final Good- any new good that is ready for use by a consumer Net Exports- the value of all exports minus all imports Unemployment Rate- percentage of the labor force that is seeking work Frictional Unemployment- people who change jobs as well as to people seeking their first jobs. Frictional unemployment is usually short term,

3.2. Structural Unemployment- advances in technology reduce the demand for certain skills Seasonal Unemployment- businesses shut down or slow down for part of the year, often because of weather. Tourism, construction, and agriculture are among the industries that typically lay people off for part of the year Cyclical Unemployment- unemployment occurs during periods of decline Underground Economy- made up of people who earn income from gambling, drug dealing, and other illegal activities Inflation Rate- percentage increase in the average price level of goods and services from one month or year to the next Price Index- measures the average change in price of a type of good over time

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

4.1. How to measure expenditures on goods and services produced in a country: C+I+G+NX=GDP Purpose of GDP: to determine not only how big an economy is, but whether it is growing or shrinking and at what rate Effects of GDP: as a country's per capita GDP increases, so too does other indicators of well'being such as- literacy and education, health and life expectancy, and the standard of living

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

5.1. Types of unemployment: frictional, structural, seasonal, and cyclical Inaccuracy of unemployment rate due to: discouraged workers, involuntary part-time workers, and underground jobs Costs of high unemployment: lost of potential output, serious economic cost, costly for society at large Full employment vs. natural rate of unemployment: Some people will always be out of work, even in an economy full of employment