Ch. 13- Measuring the Economy

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Ch. 13- Measuring the Economy by Mind Map: Ch. 13- Measuring the Economy

1. A depression is a prolonged economic downturn characterized by a plunging real GDP and extremely high unemployment

2. 13.2- How do economists measure the size of an economy?

2.1. 1). The main measure of the size of a nation's economy is its gross domestic product.

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

2.3. Gross domestic product is a useful tool for measuring economic growth. But as a measure of the overall health of an economy, GDP has several limitations.

2.4. 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.

3. 13.3- What does the unemployment rate tell us about our economy's health?

3.1. 1). Every month, the BLS reports the total number of people who were unemployed for the previous month.

3.2. 2). Four Types of Unemployment- fictional, structural, seasonal, cyclical

3.3. 3). Some people will always be out of work, even in an economy with full employment.

3.4. 4). The first problem is that at any one time, a number of unemployed people have given up looking for work.

4. 13.4- What does the inflation rate reveal about the economy's health?

4.1. 1). The BLS tracks inflation by gathering information on Americans' cost of living.

4.2. 2). Economists at the BLS track changes in the cost of living using what is known as the consumer price index.

4.3. 3). 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.

4.4. 4). A second cause of inflation is an increase in overall demand. This increase in overall demand results in demand-pull inflation. The extra demand by buyers exerts a “pull” on prices, forcing them up.

5. 13.5- How does the business cycle relate to economy health?

5.1. 1). The business cycle consists of four phases. These phases include a period of growth and a period of decline, as well as the turning points that mark the shift from one period to the next.

5.2. 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.

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

5.4. 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.

6. GDP is an economic indicator that measures a country's total economic output

7. 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.

8. Nominal GDP measures the output of an economy valued at today's prices, or in current dollars

9. unemployment rate—the percentage of the labor force that is seeking work

10. when a person has left one job and is looking for another, is what economists call frictional unemployment.

11. Structural unemployment comes about mainly when advances in technology reduce the demand for certain skills.

12. When an economy reaches full employment, jobs exist for everyone who wants to work, even though a certain percentage of those jobs and workers will not yet have been matched together. Economists call this percentage the natural rate of unemployment.

13. A price index measures the average change in price of a type of good over time.

14. The cost in current dollars of all the basic goods and services that people need is the nominal cost of living