Chapter 13

1. Key Terms

1.1. gross domestic product: the market value of all final goods and services produced within a country during a given period of time

1.2. unemployment: any individual without work, but actively seeking employment

1.3. business cycle: a recurring pattern of growth and decline in economic activity over time

1.4. inflation: an increase in the overall price level of goods and services produced in an economy

1.5. final good: any new good that is ready for consumer use; final goods are included in the calculation of GDP

1.6. intermediate good: a good used in the production of a final good; intermediate goods are not included in the calculation of GDP

1.7. frictional unemployment: a type of unemployment that results when workers are seeking their first job or have left one job and are seeking another

1.8. structural unemployment: a type of unemployment that results when the demand for certain skills declines, often because of changes in technology or increased foreign competition; under such conditions, workers may need retraining to find new jobs

1.9. structural unemployment: a type of unemployment that results when the demand for certain skills declines, often because of changes in technology or increased foreign competition; under such conditions, workers may need retraining to find new jobs

1.10. cyclical unemployment: a type of unemployment that results from a period of decline in the business cycle; unemployment caused by a contraction

2. 13.2- How Do Economists Measure the Size of an Economy

2.1. Economists measure the size of the Economy with GDP. GDP is calculated using the formula: C + I + G+ NX = GDP household consumption (C), business investment (I), government purchases (G), and the net of exports minus imports (NX).

2.2. Economists use GDP to determine if an economy is shrinking or growing

2.3. GDP has limitations including: GDP leaves out unpaid household and volunteer work. GDP ignores informal and illegal exchanges. GDP counts some negatives as positives. GDP ignores negative externalities. GDP places no value on leisure time.

2.4. As GDP grows so does literacy and education, health and life expectancy, and standard of living

3. 13.3-What Does the Unemployment Rate Tell Us About an Economy’s Health?

3.1. The government measures the unemployment rate by the BLS. Every month, the BLS reports the total number of people who were unemployed for the previous month.

3.2. 4 types of unemployment- Frictional unemployment, Structural unemployment, Seasonal unemployment, and Cyclical unemployment.

3.3. Unemployment rate= number of unemployed people/number of people in the labor force.

3.4. The main economic cost of high unemployment is lost potential output, Unemployed workers also pay a serious economic cost, High unemployment is also costly for society at large.

4. 13.4- What Does the Inflation Rate Reveal About an Economy’s Health?

4.1. Tracking Inflation with the Consumer Price Index

4.2. Demand-Pull vs. Cost-Push Inflation

4.3. Limitations of the CPI as a Measure of Inflation- Substitution bias, New product bias, and Quality change bias,

4.4. The Economic Costs of Inflation- Loss of purchasing power, Higher interest rates, and Loss of economic efficiency.

5. 13.5- How Does the Business Cycle Relate to Economic Health?

5.1. Picture of Buiness Cycle

5.2. The Four Phases of the Business Cycle- expansion, peak, contraction, trough

5.3. Leading indicators

5.4. Lagging indicators.