Chapter 13- Measuring the Economy.
by Emma Bartelson
1. 13.2--How Do Economists Measure the Size of an Economy?
1.1. When the economies GDP is steadily growing, that is a sign of economic growth.
1.2. For an economists to calculate GDP, they divide the economy into four sectors: households, businesses, government, and foreign trade.
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. Economists also use GDP to compare the economies of individual countries.
1.5. GDP has many limitations including:
1.5.1. 1. GDP leaves out unpaid household and volunteer work.
1.5.2. 2. GDP ignores informal and illegal exchanges.
1.5.3. 3. GDP counts some negatives as positives.
1.5.4. 4. GDP ignores negative externalities.
1.5.5. 5. GDP places no value on leisure time.
1.5.6. 6. GDP says nothing about income distribution.
2. 13.3--What Does the Unemployment Rate Tell Us About an Economy’s Health?
2.1. Employed means people are a part of the labor force who have jobs
2.2. Unemployed are the people that are not a part of the labor force who are jobless, but are looking for work
2.3. a high unemployment rate means the overall health of the economy is poor.
2.4. Not in the labor force is everyone who is eligible to be in the labor force but is neither working nor looking for work
2.5. There are some problems that come along with BLS unemployment rate.
2.5.1. 1. The first problem is that at any one time, a number of unemployed people have given up looking for work.
2.5.2. 2. The second problem is that the official unemployment rate does not recognize involuntary part-time workers.
2.5.3. 3. A third problem with the unemployment rate involves people working in informal or underground economies.
3. 13.4--What Does the Inflation Rate Reveal About an Economy’s Health?
3.1. Deflation occurs when prices go down over time.
3.2. Inflation can also be caused by increases in the cost of the factors of production.
3.3. The BLS relies on the consumer price index to estimate the level of inflation in the United States each month. However, critics point to several biases that may distort the CPI, making the reported inflation rate less than accurate.
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.
4.1.1. The point at which an expansion ends marks the peak of the business cycle.
4.1.2. A period of economic growth is known as an expansion.
4.1.3. Following the peak comes the contraction phase of the business cycle.
4.1.4. 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. Leading indicators. Measures that consistently rise or fall several months before an expansion or a contraction begins are called leading economic indicators.
4.4. Coincident indicators. Coincident economic indicators are measures that consistently rise or fall along with expansions or contractions.
4.5. Lagging indicators. Measures that consistently rise or fall several months after an expansion or a contraction are known as lagging economic indicators.
5. 13.1
5.1. When an economy is unsuccessful it is often known as "sick"
5.2. The United States has never gone through a period of hyperinflation
5.3. Economist often monitor the inflation in that certain economy. They also monitor other aspects of the economy.
5.4. resulting statistics, are known as economic indicators, they assess a nation's overall economic health.
6. Key Terms:
6.1. inflation: an increase in the overall price level of goods and services produced in an economy
6.2. hyperinflation: an extreme and rapid rise in the price of goods and services
6.3. economic indicators: statistics that help economists judge the health of an economy
6.4. gross domestic product: the market value of all final goods and services produced within a country during a given period of time
6.5. market value: the price buyers are willing to pay for a good or service in a competitive market
6.6. final good: any new good that is ready for consumer use; final goods are included in the calculation of GDP
6.7. intermediate good: a good used in the production of a final good; intermediate goods are not included in the calculation of GDP
6.8. net exports: the value of all exports minus all imports
6.9. nominal GDP: a measure of a country’s economic output (GDP) valued in current dollars; nominal GDP does not reflect the effects of inflation
6.10. [real GDP: a measure of a country’s economic output (GDP) valued in constant dollars; real GDP reflects the effects of inflation
6.11. 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
6.12. per capita GDP: a nation’s real GDP divided by its population; a measure of average economic output per person
6.13. informal economy: a sector of the economy that operates without government regulation or monitoring and is not officially recorded or taxed; the informal economy is not included in the calculation of GDP]
6.14. inflation rate: the percentage increase in the average price level of goods and services from one month or year to the next
6.15. 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
6.16. cost-of-living index: a measure of change in the overall cost of goods and services; another term for the consumer price index
6.17. business cycle: a recurring pattern of growth and decline in economic activity over time
6.18. contraction: a period of general economic decline marked by falling GDP and rising unemployment
6.19. trough: the lowest point of a contraction, or period of economic decline; a trough is followed by economic growth
6.20. leading economic indicators: measures that consistently rise or fall several months before an expansion or a contraction begins
6.21. lagging economic indicators: measures that consistently rise or fall several months after an expansion or contraction begins
6.22. recession: a period of declining national economic activity, usually measured as a decrease in GDP for at least two consecutive quarters (six months)
