1. 13.4 What Does the Inflation Rate Reveal About an Economy’s Health?
1.1. The BLS tracks inflation by recording data from how much Americans spend. Many people are buying goods everyday. All though consumers are buying goods, the price is always changing.
1.2. The interest rates are going to be higher due to inflation. An example of this is having an interest rate of 10 percent and an inflation rate at 4 percent, then the real interest rate is 6 percent. Having higher interest rates tends to lead to slow economic growth. This happens because goods become too expensive and then people aren't putting money into the economy.
1.3. There are 3 different types of inflation, creeping inflation. hyperinflation, and deflation. All of these inflation's can tell a lot about the economy's health. The US is more of a creeping inflation. Since 1913 the creeping inflation has been growing at a rate of 3.2 percent. Hyperinflation is not good for the economy, it happened in Germany when they just printed money and decreased the value of it. Deflation is the decrease in prices which is a negative effect on the economy.
1.4. Nominal vs. Real Cost of Living reveals a lot about the economy, Nominal based on current prices. An example of this is, shoes way back in the day costed 4 dollars but in current time their around 40 dollars. But this is normal because people are being paid at a nominal wage. Econominists use real wages to calculate the wages over time to keep up with the pace of living expenses.
2. 13.5 How Does the Business Cycle Relate to Economic Health?
2.1. The business cycle has four parts to it. The parts are expansion, peak, trough, and contraction. All of these are very crucial for economy. The expansion usually lasts 3-5 years. When its at the peak, its at the highest activity. The contraction shows how unemployment and GDP decreases. The trough is the turning point in the economy.
2.2. The business cycle has many indicators that go into it. The indicators are:Leading indicators, Coincident indicators, and lagging indicators. All of these indicators relate to the economic health by, measuring every thing out for the economy.
2.3. Boom and bust are known as periods in the business cycle. The boom is the expansion part of the cycle, it has many other synonyms for it but it just means that the economy is doing very good. Some of the things that help our economy "boom" is drilling or mining. This helps find new resources and puts money into the economy. With every boom, there comes a bust. A bust is when a recession happens in the economy. Recessions cause GDP, real wages, employment, profits and production to decline.
2.4. The reason the economy starts to shrink is because there is a negative shock to the economy, such as rapidly rising oil prices, a terrorist attack, or a stock market crash. a rise in interest rates, which makes it harder for consumers and firms to borrow money and shortages of raw materials, which can cause prices to increase. This can cause busniess to look at their inventory and then determine if they should lay people off and cut back on their production. This can lead to a depression.
3. 10 VOCAB TERMS 1.business cycle-a recurring pattern of growth and decline in economic activity over time 2. consumer price index-a measure of price changes in consumer goods and services over time 3.creeping inflation-a gradual, steady rise in the price of goods and services over time. 4-deflation- a fall in the price of goods and services; the opposite of inflation. 5. discouraged workers-unemployed workers who have ceased to look for work; discouraged workers are not considered part of the labor force and are not factored into the unemployment rate.
3.1. 6. expansion-a period of economic growth 7.final good- any new good that is ready for consumer use; final goods are included in the calculation of GDP. 8. frictional unemployment- a type of unemployment that results when workers are seeking their first job or have left one job and are seeking another. 9. hyperinflation-an extreme and rapid rise in the price of goods and services. 10. inflation rate- the percentage increase in the average price level of goods and services from one month or year to the next.
4. 13.2 How Do Economists Measure the Size of an Economy?
4.1. GDP helps measure the size of the economy by, calculating the country's total economic output.
4.2. Economists use the economies of other countries to estimate their economy. This is done by calcualating the per capita. After looking at the examples, it showed that Norwegians had a smaller economy but the US had a higher standard of living.
4.3. The standard way of living is a major impact on the economy. If there is a high GDP, then the more a family will spend and live a more luxurious life. If the GDP is lower, then the less people will spend.
4.4. The GDP is related to the life expency for people. This helps measure the economy. People tend to live longer if they live in a higher capita. If the economy has a higher capita, then they will know that their will be a bigger economy because more people will be able to live,
5. 13.3What Does the Unemployment Rate Tell Us About an Economy’s Health?
5.1. High unemployment is also costly for society at large. This happens by the unemployed cannot contribute to government taxes. Instead of giving the government money, the unemployed take the governments money to live off of.
5.2. The families who are unemployed are not able to pay for their goods and services. This results in less money being put into the economy.
5.3. People are unable to find full time jobs. So, they settle for part time jobs. This doesn't get recognized as involuntary part time worker. These workers should be considered half employed. This implies that the economy isn't able to provide full time jobs, which can decrease the amount of money someone can make and then put back into the economy.
5.4. One of the big problems in the economy is the underground economy. This is the drug trades, gambling, and illegal activities. The problem with this is that all of these things do not get taxed. And these people are doing this for a source of income, but are still consider unemployed because what they are doing is illegal and they won't identify themselves or anything.
