1. 13.4
1.1. http://www.investopedia.com/articles/06/gdpinflation.asp
1.1.1. The article explains the importance of GDP and Inflation and how Inflation effects the health of the economy and to what it indicates about the economy.
1.2. What Does the Inflation Rate Reveal About an Economy's Health?
1.2.1. The BLS tracks inflation by gathering information on Americans’ cost of living. That is, it studies the cost of buying the goods and services that households like yours purchase every day. As you would expect, the cost of living changes all the time because prices do not stay the same.
1.2.1.1. Inflation-the percentage increase in the average price level of goods and services from one month or year to the next
1.2.2. For the BLS to track the cost of living they look into the consumer price index to watch the prices of common goods and services that people get on an average basis.
1.2.2.1. Consumer Price Index-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
1.2.3. There are 3 kinds of inflation but one is technically the opposite of inflation. They are creeping inflation, hyperinflation, and deflation.
2. 13.5
2.1. How Does the Business Cycle Relate to Economic Health?
2.1.1. The term business cycle implies that expansions and contractions occur at regular, predictable intervals. But in fact, the opposite is true. 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.
2.1.1.1. business cycle: a recurring pattern of growth and decline in economic activity over time
2.1.1.2. expansion: a period of economic growth
2.1.2. Business cycles are popularly known as periods of boom and bust. A boom is the expansion phase of the cycle. It may also be known as a recovery, upturn, upswing, or period of prosperity. All these terms mean the same thing—the economy is healthy and growing. One of the key characteristics of a growing economy is an increase in business investment. When firms invest in capital goods, such as factories, machinery, and equipment, their productivity increases. This increased productivity contributes to a rise in real GDP. At the same time, firms hire more people to work in their stores, offices, and factories, thus increasing employment throughout the economy.
2.1.3. The ups and downs of the business cycle may hold little interest for you at this point in your life. This is likely to change once you enter the job market. Should you start looking for work during an expansion, you may find many employers eager to hire you. But should you start your job search during a recession, good jobs may be hard to find. The next chapter explores what the government can—and cannot—do to smooth out the bumps in the business cycle.
3. 13.2
3.1. How Do Economists Measure the Size of an Economy?
3.1.1. The main measure of the size of a nation’s economy is its gross domestic product. GDP is an economic indicator that measures a country’s total economic output. In formal terms, gross domestic product is the market value of all final goods and services produced within a country during a given period of time. A steadily growing GDP is generally considered a sign of economic health.
3.1.1.1. GDP-the market value of all final goods and services produced within a country during a given period of time
3.1.2. The job of measuring U.S. GDP belongs to the Department of Commerce’s Bureau of Economic Analysis. Economists typically calculate GDP by measuring expenditures on goods and services produced in a country. They divide the economy into four sectors: households, businesses, government, and foreign trade. Each sector’s spending makes up one of the four components of GDP: household consumption (C), business investment (I), government purchases (G), and the net of exports minus imports (NX). Economists calculate GDP using this formula: C + I + G + NX = GDP
3.1.3. 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
3.1.3.1. GDP leaves out unpaid household and volunteer work.
3.1.3.2. GDP ignores informal and illegal exchanges.
3.1.3.3. GDP counts some negatives as positives.
4. 13.3
4.1. What Does the Unemployment Rate Tell Us About an Economy's Health?
4.1.1. The job of tracking unemployment belongs to the Bureau of Labor Statistics. The BLS is a government agency that collects and analyzes economic data. This agency determines the unemployment rate—the percentage of the labor force that is seeking work. Like the GDP, the unemployment rate is a useful indicator of the health of an economy. In general, a high unemployment rate means the overall health of the economy is poor.
4.1.1.1. unemployment rate-the percentage of the labor force that is seeking work
4.1.2. In determining how many of a country’s people are unemployed, the BLS makes every effort to be accurate. Still, critics point to several problems that may make the results less than exact. One of these major problems is that at any one time, a number of unemployed people have given up looking for work. Though willing and able to work, they no longer expect to find jobs. These discouraged workers do not fit the BLS’s definition of unemployed, which counts only those people who are making an effort to find work. Because discouraged workers are left out of BLS calculations, the official unemployment rate is too low.
4.1.2.1. 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
4.1.3. Despite its flaws, the official unemployment rate serves as a fairly good indicator of conditions in the labor market. And in general, when the rate is high, the overall health of the economy is poor. The main economic cost of high unemployment is lost potential output. The smaller the number of people who are working, the fewer goods and services the economy can generate. Potential output is lost because labor resources are not being fully utilized. An increasing unemployment rate, then, means a decreasing real GDP.