# Chapter 13 measuring the Economy

Get Started. It's Free
Chapter 13 measuring the Economy

## 1. 13.2 How do Economists measure the size of an Economy?

### 1.1. GDP, what does an economy produce?

1.1.1. GDP is the Gross Domestic Product.This is the market value of all final goods and services produced within a country during a given period of time. If the GDP is high, it usually means the economy is doing well.

### 1.2. How do economists calculate GDP?

1.2.1. They divide the economy into four sectors: households, businesses, government, and foreign trade. Each sector's spending makes up one of the four components of GDP: household consumption (C), business investment (I), government purchases (G), and the net of exports minus imports (NX). Economists calculate GDP using this formula: C + I + G + NX = GDP

1.3.1. Inflation

1.3.1.1. Inflation is the value of something increasing or decreasing

1.3.2. To compensate for the effects of inflation, the Commerce Department calculates what is called real GDP. Real GDP measures the output of an economy not in current dollars, but in constant dollars. The value of constant dollars is fixed at a rate that was current in a specified base year.

1.4.1. Per capita

1.4.1.1. GDP divided by population

1.4.2. Adjusting for population is accomplished by calculating per capita GDP. Per capita means “per person.” Per capita GDP is a nation's real gross domestic product divided by its population. It is an accepted measure of a society's standard of living.

## 2. 13.3 What does the unemployment rate tell us about the health of an Economy?

### 2.1. Unemployment rate

2.1.1. the percentage of the labor force that is seeking work. 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. How the government measures unemployment

2.2.1. Every month, the BLS reports the total number of people who were unemployed for the previous month. To arrive at this figure, the BLS does not attempt to count every job seeker in the country. Instead, it conducts a sample survey each month. By examining a small but representative sample of the population, the BLS can gauge how many people in the entire population are unemployed.

### 2.3. Four types of unemployment

2.3.1. Frictional

2.3.1.1. when a person has left one job and is looking for another,

2.3.2. Structural

2.3.2.1. when advances in technology reduce the demand for certain skills.

2.3.3. Seasonal

2.3.3.1. when 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.

2.3.4. Cyclical

2.3.4.1. occurs during periods of decline. At such times, economic activity slows, GDP drops, and people lose their jobs.

### 2.4. Economic costs of high unemployment

2.4.1. The smaller the number of people who are working, the fewer goods and services the economy can generate.

## 3. 13.4 What does the inflation rate reveal about an Economy's health?

### 3.1. Inflation rate

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

### 3.2. Tracking inflation

3.2.1. The consumer price index (CPI) is a price index for a “market basket” of consumer goods and services. Changes in the average prices of these items approximate the change in the overall cost of living.

3.3.1. When prices go up, wages usually tend to go up too, this adjusts to inflation so things actually do not cost that much more than they used to

### 3.4. Economic cost of inflation

3.4.1. Whether inflation at these relatively low levels is “healthy” for the economy is open to debate.

## 4. 13.5 How does the business cycle relate to Economic health?

### 4.1. Four Phases of the business cycle

4.1.1. Expansion

4.1.1.1. economic activity increases from month to month

4.1.2. Peak

4.1.2.1. point at which expansion ends

4.1.3. contraction

4.1.3.1. Period of general economic decline

4.1.4. trough

4.1.4.1. Lowest point of contraction

### 4.2. From rise to fall

4.2.1. The economy rises and falls very often and it can come back after a decline and fall after a peak