Chapter 13: Measuring The Economy

1. Vocab

1.1. Market Value- Price buyers are willing to pay for a good or service in a competitive market

1.2. Final Good- Any new good that is ready for consumer use

1.3. Intermediate Goods- Used in the production of a final good

1.4. Net Exports- Value of all exports minus all imports

1.5. Current Dollars- Value of an dollar the yea it was spent

1.6. Real GDP- A measurement a country's economic output valued in constant Dollars

1.7. Unemployment Rate- Percentage of people in the labor force who are actively seeking for work

1.8. Inflation Rate- The percentage increase of average prices from a month and a year

1.9. Demand pull inflation-Increase in overall demand

1.10. Cost push inflation- Increasing the cost of the factors of production

2. Limitations of GDP

2.1. Leaves out unpaid household and volunteer work- activites that are unpaid can have some value, but no money is exchanged therefore it doesn't register towards the GDP

2.2. Ignores informal and illegal exchanges-Statics do no not count informal or illegal activity towards the GDP

2.3. Counts some negatives as positives- If your GDP is higher it can be a bad thing

2.4. Ignores negative externalizes- Sometimes GDP doesn't reflect the negative externalities that the earth has like pollution

2.5. Places no value on leisure time- industrilizad citizens enjoy free time more because our society has a fair share of goods

2.6. Says nothing about income redistribution- If you have an high GDP Per capita , everyone in (a) society receives a fair share of goods

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

3.1. Unemployment rate is a very useful indicator and it distributes to the health of our economy. If your country has an high unemployment rate, then that country is poor

3.2. BLS is reporting every month who is unemployed for the the previous month. They can survey about 60,000 households each month and members who were eligible in the labor force were interviewed about their hobbies.

3.3. There are many different people in the labor force, the two prime examples are employed and unemployed. Employed workers are members of the labor who have jobs,while unemployed citizens who do not have jobs, but are seeking for one. The last type is not in the labor force, which means that citizens who can be in the labor force is not working or seeking a job.

3.4. The BLS gathered some information stating that they are four types of government.

3.4.1. Frictional Unemployment: Some one who has their first job and/or quit their job and is seeking for work. If your country allows you to do this it considered to be healthy

3.4.1.1. Structural Unemployment: The demand for certain products declines, because of new technology. This actually helps our economy because someone had to build that machine to run it's job

3.4.1.1.1. Seasonal Unemployment: This only occurs when the weather affects your job. For Example, when it's snowing or cold lifeguards have no jobs because of the cold winter air

4. 13.4 What Does the Inflation Rate Reveal About an Economy's Health

4.1. There was an German experience of inflation, because of the cost of World War 1. This also ended putting Germany in debt because they had to pay back a lot of expenses.

4.2. Tracking information is another skill that the BLS has. Even economists use for tracking the changes in our cost living (consumer price index).

4.3. There are also different types of cost of living Real and Nominal. Nominal cost of living- is the current dollars of all basic goods while Real cost living is comparing the cost of livings from the past to the present. All consumers today use Nominal cost with Nominal wages because we could not compare their costs if we used real wages instead. However, the economists can use real wages to calculate and compare over time.

4.4. We also have three types of inflation in our system; Creeping Inflation, Hyperinflation, and Deflation.

4.4.1. Creeping Inflation- When the prices of goods and services rises gradually over time. This has been shown lots of time throughout the United States.

4.4.1.1. Hyperinflation: Can happen occasionally when inflation goes into overdrive. Example would be World War 1, Germany had to pay back all the expenses and it was practically impossible for Germany to pay it back. (Investopedia).

4.4.1.1.1. Deflation: Naturally occurs when prices of a good go down over time. Although, it was it may seem like a bad thing, it actually helps consumers and savers.

5. Limitations of CPI

5.1. Substitution Bias- Since the CPI measures the price changes of fixed goods, it doesn't account the consumer's ability to substitute goods

5.2. Outlet Substitution Bias- CPI is slower and reflects on the changing trends in our shopping patterns

5.3. New product bias- During the market economy us consumers are introduced to new products almost everday

5.4. Quality change bias- Technology over time can advanced like it has done now.

6. Economic Cost of Inflation

6.1. Lower purchasing power- Sometimes inflation can erode the purchasing power that we have for our goods and services

6.2. Higher Interest rate- Means that expecting that the inflation rate will erode later down the line

6.3. Loss of economic efficiency- Economists are considering the uncertainty of prices are causing the prices to be a huge problem

7. 13.5- How Does the Business Cycle Relate to Economic Health

7.1. Our economies our always changing and this has something to do with the business cycle. The business cycle is a recurring pattern of growth and decline in economic activity over time.

7.2. There are four phases of the business cycle and they are: Expansion, Peak, Construction, and Trough

7.3. Expansion- Periodic of economic growth. During this phase of a business cycle economic activity increases from month to month

7.4. Peak- Point at which expansion ends . The economic activity has reached the highest level and sometimes it means that the economic activity is declining.

7.5. Contraction- period of general economic decline marked by a falling GDP and rising employment.

7.6. Trough- Lowest point of a contraction and it also known as an turning point for a economy.

8. 13.2- How Do Economists Measure the size of the economy

8.1. Gross Domestic Product: main measurement of the nations economy. Indicator that measures (our) a country's economic input. If its growing steadily it considered healthy.

8.2. GDP is typically calculated by an economist who measures the expenditures on godds and services produced in a country. The economy is also divided into four sections (C) Consumer goods, (I) Business Investments, (G) Government Purchases, (NX), and the net of exports minus imports.

8.3. GDP is also used for to determine how economy is big, and how the rate grows or shrinks. You can also calculate your GDP. It's an simple process in which you have to add the spending for all four yield components.

8.4. You can also use GDP for comparing individual countries. Although GDP is used to determine economic growth it can also be used for the overall health of the economy.