Chap. 13: Measuring the Economy

1. 13.4: What does the inflation rate reveal about an economy's health?

1.1. The BLS tracks inflation by gathering information on Americans' cost of living.

1.2. The cost of living in America is measured by the average costs of goods, housing, services, and wages at any given time.

1.3. In the real world, prices are not stable. This is because of creeping inflation (addition of too much money), hyperinflation, or deflation.

1.4. The consumer price index is skewed by several factors: substitution bias, outlet substitution bias, new product bias, quality and charge bias.

1.5. Key Terms: Inflation: an overall increase in the price of goods and services produced in an economy. Economic Indicators: statistics that help economists judge the health of an economy Consumer Price Index (CPI): a measure of price changes in consumer goods and services or the changes in cost of living per year

2. 13.5 How does the business cycle relate to economic health?

2.1. The business cycle contains 4 parts: expansion, peak, contraction, and trough.

2.2. Business cycles are irregular in both length and severity; this makes peaks and troughs difficult to predict.

2.3. Business cycles have consistent indicators, coincident indicators, and lagging indicators; also known as "boom and busts".

2.4. Busts eventually turn into busts and booms turn to busts as well; sometimes it can be very severe or not noticeable at all.

2.5. Key Terms: Business Cycle: a recurring pattern of growth and decline in an economic activity over time. Recession: a period of declining national economic activity, usually a decrease in GDP. Depression: prolonged economic downturn

3. 13.2: How do economists measure the size of the economy?

3.1. Economics can be looked at in two perspectives; micro econ and macro econ. Micro looks at how individuals, households, and businesses buy/sell and Macro looks at the economy as a whole.

3.2. The Department Bureau of Commerce of Economic Analysis measures the economy by four ways; the market value, final goods and services produced, goods produced within a country, any given period of time.

3.3. Economists calculate GDP by adding household consumption, business investments, gov. purchases, and exports minus imports.

3.4. The GDP has many limitations for our complex economy, but it still is very good indicator to the health of a country.

3.5. Key Terms: Gross Domestic Product (GDP); the market value of all final goods and services produced within a country at any given point Per Capita GDP: a nation's real GDP divided by population; measure of economic output per person

4. 13.3: What does the unemployment rate

4.1. The Bureau of Labor Statistics comes out with a monthly percentage of those who are employed. The BLS classifies individuals into one of three things: employed, unemployed, or not in labor force.

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

4.3. There are three problems when it comes to the Unemployment Rate in relation to a country's economic health: those who are unemployed may have given up their efforts in searching for a job; it doesn't recognize involuntary part-time workers; it involves people working in the underground economy.

4.4. The main economic cost of unemployment is the lost potential output and on an individual level, it could mean a loss in personal assets.

4.5. Key Terms: Unemployment Rate: the percentage of labor force that is not employed but is actively seeking work Inflation Rate: the percent increase in the average price of goods and services from one month or year to the next