Chapter 13- Measuring the Economy

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Chapter 13- Measuring the Economy by Mind Map: Chapter 13- Measuring the Economy

1. 13.2- How Do Economists Measure the Size of an Economy?

1.1. The main way to measure the size of an economy is to look at a nation's gross domestic product.

1.2. They divide the economy up into four different sections: households, businesses, government, foreign trade. Each section's spending makes up a part of the GDP.

1.3. Economists use GDP figures to determine not only how big an economy is, but whether it is growing or shrinking and at what rate.

1.4. As a country's per capita GDP increases, so too do other indicators of well-being, such as literacy and education, health and life expectancy, and standard of living.

2. 13.3- What Does the Unemployment Rate Tell Us About an Economy’s Health?

2.1. In general, a high unemployment rate means the overall health of the economy is poor.

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

2.3. It is difficult to say how many people there are unemployed in the country. It is difficult because unemployed people can stop looking for work at any time. It's also difficult because the rate doesn't include involuntary part-time workers. The rate also doesn't include people working in informal or underground companies.

2.4. The main economic cost of high unemployment is lost potential output.

3. 13.4- What Does the Inflation Rate Reveal About an Economy’s Health?

3.1. The BLS tracks inflation by gathering information on Americans' cost of living. They do this using the consumer price index.

3.2. Consumers pay nominal costs with nominal wages, or wages based on current prices. As prices go up, wages generally go up as well. By using the CPI to adjust for inflation, economists can calculate real wages and compare them over time.

3.3. 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.

3.4. Over time, technological advances may improve the quality or add to the lifetime of a product.

4. 13.5- How Does the Business Cycle Relate to Economic Health?

4.1. The business cycle consists of four phases. A period of economic growth is known as an expansion. The point at which an expansion ends marks the peak of the business cycle. Following the peak comes the contraction phase of the business cycle. The lowest point of a contraction is called the trough.

4.2. 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.

4.3. Business cycles are popularly known as periods of boom and bust. A boom is the expansion phase of the cycle.

4.4. 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.

5. Vocabulary

5.1. Business Cycle- a recurring pattern of growth and decline in economic activity over time

5.2. Constant dollars- the value of the dollar fixed at a specified base year; a measure of the dollar’s value adjusted for inflation to reflect purchasing power over time

5.3. 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

5.4. Contraction- a period of general economic decline marked by falling GDP and rising unemployment

5.5. Cost-of-living index- a measure of change in the overall cost of goods and services; another term for the consumer price index

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

5.7. Creeping inflation- a gradual, steady rise in the price of goods and services over time

5.8. Current dollars- the value of a dollar in the year it is spent; a measure of the dollar’s value that reflects current purchasing power, without taking inflation into account

5.9. Cyclical unemployment- a type of unemployment that results from a period of decline in the business cycle; unemployment caused by a contraction

5.10. Deflation- a fall in the price of goods and services; the opposite of inflation