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LESSON 18
ECONOMIC INDICATORS FOR
INFORMED CITIZENS
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IN
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LESSON 18
ECONOMIC INDICATORS
FOR
INFORMED CITIZENS
INTRODUCTION
On any given day, citizens reading a
newspaper or watching a newscast are likely
to read or hear reports about the state of the
U.S. economy. Often these reports discuss
economic indicators. An economic indicator is
a statistic that indicates something about the
current performance of the U.S. economy. The
three most commonly reported indicators are
real gross domestic product (GDP), the
inflation rate, and the unemployment rate.
Economic indicators serve people in
several ways. Investors use economic
indicators to make decisions about how to
invest. Consumers use economic indicators
to make decisions about buying a home.
Business owners use economic indicators to
make decisions about how many workers
to employ. And citizens may use economic
indicators to make decisions about which
representatives to vote for and which public
policies to support. These and other uses of
economic indicators will be important to
students as they move toward adult
participation in the economy.
LESSON DESCRIPTION
This lesson introduces students to three
basic economic indicators: real GDP, the
inflation rate, and the unemployment rate.
The students work in small groups to develop
an economic forecast, using the three basic
economic indicators. They participate in a
simulation activity involving a fictional
economic forecasting firm. The firm has taken
on a client who wishes to start a new business
and wants to know whether this is a good
idea, given the current economic climate. To
advise the client, the students produce a
report based on research they conduct about
the state of the economy, according to the
three economic indicators.
CONCEPTS
• Economic forecasting
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•
Gross domestic product (GDP)
•
Inflation
•
Unemployment
OBJECTIVES
Students will be able to:
1. Define real gross domestic product,
inflation, and unemployment rate.
2. Locate current data for real gross domestic
product, inflation, and the unemployment
rate.
3. Examine 12-month trend data for gross
domestic product, inflation, and the
unemployment rate.
4. Use economic data to produce a report
that describes the current state of
economic activity and provides an
economic forecast to a fictional client.
CONTENT STANDARDS
Economics (CEE Standards)
•
A nation’s overall levels of income,
employment, and prices are determined by
the interaction of spending and production
decisions made by all households, firms,
government agencies, and others in the
economy. (Standard 18)
•
Unemployment imposes costs on individuals
and nations. Unexpected inflation imposes
costs on many people and benefits some
others because it arbitrarily redistributes
purchasing power. Inflation can reduce the
rate of growth of national living standards
because individuals and organizations use
resources to protect themselves against
the uncertainty of future prices. (Standard
19)
•
Federal government budgetary policy and
the Federal Reserve System’s monetary
policy influence the overall levels of
employment, output, and prices. (Standard
20)
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Civics and Government (NSCG
Standards, Grades 9-12)
•
Students should be able to evaluate, take,
and defend positions on issues regarding
the major responsibilities of the national
government for domestic and foreign
policy. (Standard III.B.2)
•
Students should be able to evaluate, take,
and defend positions about the effects of
significant economic, technological, and
cultural developments in the United
States and other nations. (Standard
IV.C.3)
TIME REQUIRED
60-90 minutes
MATERIALS
• A transparency of Visuals 18.1 and 18.2
•
A copy for each student of Activity 18.1
and 18.2
•
Online sources: See Procedure 3 below
PROCEDURE
1. Tell the students that this lesson will focus
on some key indicators that are used to
measure the health of the nation’s economic
system. Ask the students if they are
familiar with any TV shows set in emergency rooms. Prompt them to think of the
important medical information (the vital
signs) that emergency room doctors use to
determine the health of the patient (e.g.,
pulse, blood pressure, respiration, etc.).
Explain that, much like an emergency
room patient, the United States economy
has important “vital signs” as well. These
vital signs can be thought of as economic
indicators.
2. To move toward an introduction of the
lesson’s main concepts, ask the students
whether they have ever heard or read a
news story about the “health” of the U.S.
economy. If anybody has, ask whether the
news item mentioned inflation, unemployment, or gross domestic product. (Discuss
responses briefly.) Explain that these
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concepts refer to three important economic
indicators—vital signs that can tell us a
great deal about the “health” of the
economy. Display and briefly discuss
Visual 18.1, explaining that today the
students will be learning about all three
of these indicators.
3. Introduce the simulation activity: in order
to learn about the economic indicators, the
students will play the role of a partner in
a fictional economic forecasting firm.
Distribute Activity 18.1. Note: If you have
access to a computer lab, the students
should read the most recent EconEdLink
Case Studies on the inflation rate, the
unemployment rate, and real gross
domestic product:
•
Case Study: The Inflation Rate
http://econedlink.org/lessons/index.php?
lesson=EM760&page=teacher
•
Case Study: The Unemployment Rate
http://econedlink.org/lessons/index.php?
lesson=EM770&page=teacher
•
Case Study: Real Gross Domestic
Product
http://econedlink.org/lessons/index.php?
lesson=EM775&page=teacher
Students will also need access to current
economic data. The following are sources
for current economic data:
•
White House Economics Briefing
Room:
http://www.whitehouse.gov/fsbr/esbr.html
•
Bureau of Labor Statistics:
http://www.bls.gov/eag/eag.us.htm
• Bureau of Economic Analysis:
http://www.bea.gov/
•
EconEdLink Data Links:
http://econedlink.org/datalinks/
4. This lesson uses a form of cooperative
group learning. Explain to the students
that they will be assigned to two groups.
First, they will be assigned to a Home
Group that represents their economic
forecasting firm, Economic Forecasters,
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LESSON 18 ECONOMIC INDICATORS
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Inc. (or EFI). Each EFI group will have at
least three members. The second group is
an Expert Group. Within this group the
students will learn about one economic
indicator, and complete the appropriate
Study Guide. Then they will return to
their EFI groups to report what they have
learned. Each student will have a data
retrieval chart (see Table 18.1) in which
to enter relevant information. Sample
responses to Study Guides:
Study Guide Answers:
Unemployment Rate
1. All people without a job are considered
unemployed.
(circle one)
TRUE / FALSE
2. The unemployment rate measures__.
(The percentage of the U.S. labor force
that is unemployed.)
3. The unemployment rate is calculated
by______. (It is calculated by dividing
the number of unemployed individuals
[U] by the number of people in the labor
force, which is the sum of the number of
people unemployed [U] and the number
of people employed [E]. The result is
then multiplied by 100 to turn the
unemployment rate into a percentage;
unemployment rate = [U/U+E] x 100.)
7. Current unemployment rate: ________.
(Answer will depend on current information; see www.bls.gov.)
8. Unemployment rate trend over the last
year: ______. (Answer will depend on
current information; see www.bls.gov.)
Study Guide Answers:
Inflation Rate
1. The Consumer Price Index (CPI)
is_____. (A measure of the average level
of prices paid for goods and services by
households.)
2. The Consumer Price Index measures_____. (The cost of purchasing a
fixed market basket of goods and
services.)
3. The inflation rate is calculated by_____.
(Determining the percentage change in
the CPI from one month to the next or
from one year to another.)
4. Calculate the inflation rate if:
CPI (September 2007) = 208.5
CPI (September 2008) = 218.8
_________ (4.9%)
5. Two causes of inflation:
a. Demand-pull.
4. Calculate the unemployment rate if:
U = 7,000,000
__________ (4.8%)
E = 145,000,000
b. Cost-push.
6. Costs when the inflation rate increases
faster than expected:
5. Costs of an increasing unemployment
rate:
•
Workers do not have the income to
support themselves.
•
GDP is lower.
•
Average standards of living are
lower as a result of unemployment.
5. Three types of unemployment:
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•
Frictional unemployment.
•
Structural unemployment.
•
Cyclical unemployment.
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a. People on fixed incomes are worse off.
b. Interest rates increase.
c. Business investment decreases.
d. Purchasing power decreases.
7. Current (12-month) inflation rate: ____.
(Answer will depend on current
information; see www.bls.gov.)
8. Inflation rate trend over the last three
years: _____. (Answer will depend on
current and historical information; see
www.bls.gov.)
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Study Guide Answers:
Real Gross Domestic Product (GDP)
1. The gross domestic product (GDP)
is____. (The output of final goods and
services produced in the U.S. in one
year.)
2. Real GDP is______. (Output adjusted
for inflation.)
3. The components of GDP are:
_____ consumer spending.
_____ investment spending.
_____ government purchases of
goods and services.
_____ net exports (exports –
imports).
Complete the formula: GDP =
+ Xn [net exports])
(C + I + G
4. GDP is an important measure of the
nation’s economic health because
________. (Output is crucial to employment, earnings, income, spending, and
other key measures of overall economic
well-being.)
FOR INFORMED
CITIZENS LESSON 18
5. Assign the students to their EFI groups.
(Note: It is possible that an EFI group may
have more than three members if the
number of students in the class is not
divisible by three). At the same time,
assign the students to one of the three
Expert Groups (Inflation, Unemployment,
real GDP). Note that each EFI group is
required to have one expert in each of the
three categories of unemployment,
inflation, and real GDP. This means that
students must be evenly distributed across
expert groups. Once these groups have
formed, display Visual 18.2. Announce
that the groups will now break up into
their assigned expert groups.
6. Allow the students 15 minutes to read the
description of their indicator, discuss it,
and complete the row in Table 18.1 that
pertains to their indicator. Note that the
students will need access to the Internet
in order to complete the section asking for
current information and recent trends of
their indicator. For sample responses, see
Table 18.1.
5. Increasing GDP indicates _______.
(Greater output, higher productivity,
and/or more employment, higher
standard of living, etc.)
6. Decreasing GDP indicates _______.
(Less output, lower productivity,
and/or less employment, lower
standard of living, etc.)
7. Current level and growth rate of real
GDP: _______. (Answer will depend on
current information; see www.bea.gov.)
8. Trend in the growth of real GDP over
the last three years: _______. (Answer
will depend on current and historical
information; see www.bea.gov.)
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TABLE 18.1
KEY ECONOMIC INDICATORS
Indicator
Indicator
How
measures?
calculated?
An increase in
this indicator
means…?
A decrease in
this indicator
means…?
More output in
U.S., more
“product” (goods
and services)
produced; living
standards may
be higher.
Less output
in U.S., less
“product”
(goods and
services)
produced; living
standards may
be lower;
potential for
recession.
Answers will
depend on
current
information.
An unexpectedly
large decrease
in the rate of
inflation can
lead to people
having more
purchasing
power than they
expected; people
on fixed incomes
are relatively
better off than
they expected;
interest rates go
down.
Answers will
depend on
current
information.
Workers are
better off; GDP
is higher;
average living
standards may
be higher.
Answers will
depend on
current
information.
Real GDP Growth in U.S.
output of final
goods and
services
(adjusted for
inflation) in a
given year.
Sum of all
consumption
spending,
investment
spending, and
government
purchases of
goods and
services
added to net
exports
(exports
–imports).
Inflation
Rate
An unexpectedly
large increase in
inflation can
lead to reduced
purchasing
power; people on
fixed incomes
without cost-ofliving adjustments (COLAs)
are hurt;
{[CPI (Year 2) –
interest rates
CPI (Year 1)] /
go up.
CPI (Year 1)} x
100
Percentage
change in
average level
of prices of
goods and
services purchased by the
typical household. The
consumer
price index
(CPI) is the
most widely
reported
measure of the
overall price
level.
Compares
the cost of
purchasing a
fixed market
basket of
goods and
services to its
cost in a previous month
or year:
Unemploy- The percentage Labor force =
ment
of the United
unemployed +
Rate
States labor
employed;
force that is
unemployed.
unemployment
rate =
{unemployed /
(unemployed
+ employed)}
x 100
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Workers do not
have the income
to support themselves; GDP is
lower; average
living standards
may be lower.
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Current data
(and trend)
for the
indicator?
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7. Once the students have completed their
respective sections of Table 18.1, have
them return to their EFI groups; in the
EFI groups they should share what they
have learned with other members of the
group. Each member should then complete the remaining sections of Table 18.1
based on the reports of the other two
members.
8. Once students complete Table 18.1, each
EFI group will prepare a report written to
the fictional client (“Ms. J. Q. Public”).
Each group should use the report template
provided at the end of Activity 18.2.
CLOSURE
Once the reports have been completed, ask
the students to share their recommendations.
How many recommended opening the new
business? Why?
(Answers will vary, based on the current
performance of the economy.)
Quickly review the definitions of each of the
economic indicators. Ask the students what
the trend was for each indicator. Ask them to
explain their recommendations based on these
trends.
(E.g., if real GDP has fallen for two quarters,
EFI might recommend that Ms. Public be
cautious about starting a new business.)
ASSESSMENT
Multiple-Choice Questions
1. Which of the following statements is not
true?
A. Unemployment can lead to financial
and family problems.
B. Unemployment leads to higher
standards of living.
C. The labor force includes those who are
working or actively looking for work.
FOR INFORMED
CITIZENS LESSON 18
2. If the Consumer Price Index (CPI) for one
year was 150 and for the next year it was
157.5, the inflation rate from one year to
the next is
A. 5.0%.
B. 7.5%.
C. 57.5%.
D. 157.5%.
3. Gross domestic product is calculated by
adding together
A. consumer spending, government
spending, and all imports.
B. consumer spending, government
spending, and all investments.
C. consumer spending, investment
spending, and net exports.
D. consumer spending, investment
spending, government purchases
of goods and services, and net
exports.
Constructed-Response Question
Read the following fictional headline:
U.S. output increases for the 10 th
consecutive quarter
Define the economic indicator used in the
headline. Then explain the headline: what
does it mean, literally, and what does it
suggest about the U.S. economy?
(This headline refers to real GDP. The
headline means that the U.S. economy has
been experiencing an economic expansion for
the past 2 1/2 years. Associated with this
expansion, there probably has been an
improvement in average living standards,
increased spending in various sectors of the
economy, and, perhaps, a reduction in the
unemployment rate.)
D. Unemployment is associated with less
output in the overall economy.
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LESSON 18 ECONOMIC INDICATORS
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VISUAL 18.1
ECONOMIC INDICATORS: THE VITAL SIGNS
ECONOMY
OF THE
U.S.
Economic Indicator:
A statistic that describes the current performance of the U.S. economy.
Three Main Economic Indicators:
1. Real Gross Domestic Product (GDP)
This indicator measures the output of the final goods and services
produced in the U.S. economy in a given time period (typically, one
year).
2. The Inflation Rate
This indicator measures how rapidly the overall price level is
changing in the U.S. economy.
3. The Unemployment Rate
This indicator measures the percentage of the U.S. labor force that
wishes to work, but are currently without jobs.
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VISUAL 18.2
LETTER
FROM A
CLIENT
From the Desk Of:
J. Q. Public,
CEO
Acme Industries, Inc.
November 19, 2008
The Economic Forecasters, Inc.
123 Any Street
Muncie, Indiana
To Whom It May Concern:
I am the CEO of a successful business. My firm manufactures and distributes
many consumer products. I would like to have the company open another factory,
but our Board of Directors is concerned that the U. S. economy is too weak to
support its expansion. Recent economic reports—especially in the popular
media—paint a mixed picture.
Therefore, I would like to hire your firm to produce a report that describes the
current state of the U.S. economy and forecasts the performance of the economy
over the next 12 months.
I would appreciate a complete report, so please include several charts or graphs
that will help me see the trends in the economy. I will then share these results
with the Board of Directors.
I look forward to receiving your report.
Sincerely,
Jocelyn Q. Public
Chief Executive Officer
Acme Industries, Inc.
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LESSON 18 ECONOMIC INDICATORS
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ACTIVITY 18.1
INTRODUCTION
TO
KEY ECONOMIC INDICATORS
Directions: Read each of the three descriptions below, paying close attention to the economic indicator
you have been assigned in your Expert Group. In your Expert Group, work to complete both the
Study Guide and Table 18.1 for that indicator. Be prepared to share your findings when you return
to your EFI group.
1. The Unemployment Rate1
The unemployment rate is the percentage of the United States labor force that is unemployed.
It is calculated by dividing the number of unemployed individuals (U) by the sum of the number of
people unemployed (U) and the number of people employed (E). This result is then multiplied by
100 to turn the unemployment rate into a percentage:
Unemployment Rate = [U/U+E] x 100
The U.S. labor force equals the number of people who are unemployed added to the number of
people who are employed. An individual is counted as unemployed if he or she is 16 years old or
older and is actively looking for a job, but cannot find one. Students, individuals who choose not to
work, and retirees are not in the labor force, and therefore not counted in the unemployment rate.
Unemployed workers often do not have sufficient income to support themselves or their families;
this can lead to financial challenges, marital problems, and even criminal activity.
State and federal governments provide unemployment compensation (insurance) to some unemployed workers. Because most workers pay the taxes that fund the unemployment compensation,
some of the cost of unemployment is spread to employed taxpayers as well.
Increases in unemployment mean that real GDP is lower than it otherwise could be. If more
individuals had been employed, the nation’s economic output would be higher. Average standards of
living are lower as a result of unemployment.
There are three types of unemployment, each of which describes the particular circumstances
of individuals and their employment situations.
•
Frictional unemployment is temporary unemployment arising from the normal job search
process: it may include people who are seeking better or more convenient jobs, or those who are
graduating from school and just entering the job market.
•
Structural unemployment results from changes in the economy caused by technological
progress and long-term shifts in the demand for goods and services. With structural unemployment, some jobs in certain sectors of the economy are eliminated and new jobs are created in
faster-growing areas. Persons who are structurally unemployed may lack skills for new types
of jobs and may face prolonged periods of unemployment.
•
Cyclical unemployment is unemployment caused by a general downturn in economic activity.
This type of unemployment can hit many different industries during a period of overall economic
weakness.
1 Description created using S. Buckles (2006), “A Case Study: The Unemployment Rate,”
EconEdLink. Accessed at http://econedlink.org/lessons/index.cfm?lesson=EM219&page=teacher on
April 20, 2007.
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ACTIVITY 18.1, CONTINUED
INTRODUCTION
TO
KEY ECONOMIC INDICATORS
Study Guide: The Unemployment Rate (fill out the Study Guide in your Expert Group;
you will share this information with your EFI group).
1. All people without a job are considered unemployed. (circle one)
TRUE / FALSE
2. The unemployment rate measures___________________________________________.
3. The unemployment rate is calculated by_______________________________________.
4. Calculate the unemployment rate if:
U = 7,000,000
E = 145,000,000
_________________________________________________________.
5. Costs of an increasing unemployment rate:
•
•
•
6. Three types of unemployment:
•
•
•
7. Current unemployment rate:_______________.
8. Unemployment rate trend over the last year:________________________________.
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ACTIVITY 18.1, CONTINUED
INTRODUCTION
TO
KEY ECONOMIC INDICATORS
2. Inflation: The Consumer Price Index (CPI)2
Inflation is a rise in the average prices of all goods and services. The consumer price index
(CPI) is the most widely reported measure of inflation. The CPI compares the prices of a fixed set of
goods and services (called a “market basket of goods and services”) to the prices of those same goods
and services in a previous month or year. Any increase in the cost of purchasing this market basket
of goods and services means an overall increase in the average level of prices paid by consumers,
and thus inflation is said to be present.
The inflation rate is calculated by determining the percentage change in the CPI from one
month to the next or from one year to another. For example, the CPI for November 2005 was 199.2
The CPI in November 2006 was 201.7. Therefore, the percent change in the CPI was:
[(201.7 – 199.2) / 199.2] x 100 =
[2.5 / 199.2] x 100 =
= 1.3%
The inflation rate from November 2005 to November 2006 was 1.3%. In other words, the average
price of the market basket of goods and services rose 1.3% during that one- year period.
Over short periods of time, inflation can be caused by increases in costs or increases in spending.
Demand-pull inflation occurs when overall increases in demand pull up the average level of
prices. If spending increases faster than the economy’s capacity to produce more goods and services,
there will be upward pressure on prices. Cost-push inflation is caused by increases in costs of
major inputs used throughout the economy. Increases in costs push up the average level of prices.
For example, throughout much of 2007 and 2008, inflation rates increased largely because of
increases in the price of oil. Because oil is an important input for many goods and services, an
increase in its price leads to price increases for many other things. In the long run, inflation can
also be caused by excessive growth of the money supply.
Costs of Inflation. Inflation that is greater than people expected reduces the purchasing
power of money. Because prices rise over time, consumers require a larger income to purchase the
goods and services necessary to maintain a constant standard of living. People on fixed incomes
such as pensioners or workers without cost-of-living adjustments (COLAs) are especially hurt by
unexpected inflation. High inflation makes it difficult for businesses and consumers to predict the
future and can discourage long-term saving and investment. High inflation leads to high interest
rates. Lenders receive higher interest payments, part of which is compensation for the decrease in
the value of the money lent (due to inflation). Borrowers have to pay higher interest rates and lose
any advantage they may have from repaying loans with money that is not worth as much as it was
prior to the inflation.
2 Description created using S. Buckles (2006), “A Case Study: The Inflation Rate,” EconEdLink.
Accessed at http://econedlink.org/lessons/index.cfm?lesson=EM222&page=teacher on April 23, 2007.
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CITIZENS LESSON 18
ACTIVITY 18.1, CONTINUED
INTRODUCTION
TO
KEY ECONOMIC INDICATORS
Study Guide: The Inflation Rate. Fill out the study guide in your expert group; you will
share this information with your EFI group.
1. The Consumer Price Index (CPI) is_____________________________________.
2. The Consumer Price Index measures______________________________________._
3. The inflation rate is calculated by_________________________________________.
4. Calculate the inflation rate if:
CPI (September 2007) = 208.5
CPI (September 2008) = 218.8
__________________________________________________________
5. Two causes of inflation:
a.
b.
6. Costs when the inflation rate increases faster than expected:
a.
b.
c.
d.
7. Current (12-month) inflation rate: _______________.
8. Inflation rate trend over the last three years:________________________________.
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ACTIVITY 18.1, CONTINUED
INTRODUCTION
TO
KEY ECONOMIC INDICATORS
3. Economic Output: Real Gross Domestic Product (GDP)3
Real gross domestic product (real GDP) is a measure of economic output. It is defined as
the market value of final goods and services produced in the United States in a year, adjusted for
inflation. Real GDP is total output adjusted for inflation by holding prices constant.
•
Gross measurement includes the total amount of goods and services produced, some of which
replace goods that have depreciated or have worn out.
•
Domestic production includes only goods and services produced within the United States.
•
Current production is measured during the year in question.
•
It is a measurement of the final goods and services produced because it does not separately
include the value of an intermediate good that is part of a transaction between parties that do
not involve the final customer. We count only the final sale.
Changes in real GDP from one year to the next reflect changes in the market value of the output of goods and services holding the prices of goods and services constant. Therefore, any changes
in real GDP can only arise from a change in the quantities of goods and services produced. Prices
are held constant in constructing real GDP measures. Real GDP per capita is the real GDP per
person in the economy and is commonly thought of as the best measure of overall economic wellbeing in a country.
The GDP is calculated by totaling up consumption spending, investment spending, government
purchases of goods and services, and spending on U.S. exports. To arrive at the amount actually
produced in the United States (that is, U.S. Gross Domestic Product), our spending on imports is
subtracted from those other amounts of spending. Thus,
GDP = Consumption spending + investment spending + government purchases of goods and
services + (export spending – import spending)
Consumption spending consists of household spending on final goods and services. These
purchases can account for 60 to 70 percent of GDP and include goods such as new cars, furniture,
food, and clothing; and services such as rent paid on apartments, airplane tickets, legal advice, and
entertainment. Services are the largest and fastest growing component of consumption spending.
Investment spending accounts for approximately 15 percent of GDP and can fluctuate a lot
over time. It includes the production of tools, equipment, new business structures, machinery, etc.,
that are used in the production of other goods and services. These items are expected to yield a
stream of returns over time, which is why expenditures in this category are referred to as economic
3 Description created using S. Buckles (2006), “A Case Study: Gross Domestic Product,”
EconEdLink. Accessed at http://econedlink.org/lessons/index.cfm?lesson=EM225&page=teacher on
April 23, 2007.
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investment. GDP does not include financial investment such as purchases of stocks and bonds The
investment category of GDP also includes the building of a new homes or apartments. Inventory
changes are also found in investment expenditures.
Government purchases of goods and services includes federal, state, and local government
spending on goods and services such as research, roads, defense, schools, and police and fire
departments. This spending (approximately 20 percent of GDP) does not include transfer payments
such as Social Security, unemployment compensation, and welfare payments, which do not represent
production of goods and services. National defense spending now accounts for approximately
5 percent of GDP. State and local government spending on goods and services accounts for about
12 percent of GDP, while federal government purchases of goods and services are about 8 percent
of GDP.
Exports are goods and services produced in the United States and purchased by foreigners.
Currently exports account for about 10 percent of GDP.
Imports are items produced by foreigners and purchased by U.S. consumers; they account for
about 16 percent of GDP.
Net exports (exports minus imports) have consistently been negative over the past three
decades and are now about negative 6 percent of GDP.
Real GDP per capita is a measure of the claim on final goods and services of the average
member of the U.S. population. This is the best measure of overall material standards of living and
is commonly used in making comparisons of living standards across countries and over time.
While there are several measures of overall economic performance (such as inflation,
unemployment, personal income, etc.), none is a more important indicator of our economy’s
health than rates of change in real GDP. When our real GDP increases, we are producing more
“product” as a nation, and we are usually better off.
Changes in real GDP are discussed in the press and on the nightly news after every
announcement of the latest quarter’s newly released or revised data. Any change in the growth
of real GDP will be discussed in news reports as an indicator of the health of the national
economy.
Real GDP trends are prominently included in discussions of potential slowdowns and economic
booms. Economic commentators use decreases in real GDP as indicators of recessions. For example,
the most popular (although technically inaccurate) definition of a recession is at least two consecutive
quarters of declining real GDP.
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Study Guide: Real Gross Domestic Product (GDP). (Fill out the study guide in your
expert group; you will share this information with your EFI group.)
1. The gross domestic product (GDP) is______________________________________.
2. Real GDP is_________________________________________________________.
3. The components of GDP are
a. __________________________________________.
b. __________________________________________.
c. __________________________________________.
d. __________________________________________.
Complete the formula:
GDP =
4. GDP is an important measure of the nation’s economic health because
_______________________________________________________________.
5. Increasing GDP indicates
_____________________________________________________________________.
6. Decreasing GDP indicates
_____________________________________________________________________.
7. Current level and growth rate of real GDP:
_____________________________________________________.
8. Trend in the growth of real GDP over the last three
years:______________________________________.
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CITIZENS LESSON 18
ACTIVITY 18.1, CONTINUED
TABLE 18.1 KEY ECONOMIC INDICATORS
Indicator
Indicator
How
measures?
calculated?
An increase in
this indicator
means…?
A decrease in
this indicator
means…?
Current data
(and trend)
for the
indicator?
Real GDP
Inflation
Rate
Unemployment
Rate
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ACTIVITY 18.2
ECONOMIC FORECAST REPORT
Directions: Use the completed Study Guides and Table 18.1 to develop a report to Ms. J. Q. Public.
As a group, come to a consensus about your recommendation. Use the template below to prepare
your report.
Economic Forecasters, Inc.
Economic Forecast Report
Prepared for Ms. J. Q. Public
Output of the United States economy, as measured by __________________ is currently
___________. The trend in output over the last 12 months has been
_____________________________________________________________________________________________
____________________________________________________________________________________________.
The overall effect of this trend implies that_____________________________________________________
____________________________________________________________________________________________.
The average level of prices in the U.S., as measured by
________________________________________________________________, is rising at a current rate of
______________________________________________. The trend in the U.S. price level over the last 12
months has been_________________________.
________________________________________________________________________.
The overall effect of this trend implies that____________________________________
________________________________________________________________________.
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CITIZENS LESSON 18
ACTIVITY 18.2, CONTINUED
ECONOMIC FORECAST REPORT
The percentage of the U.S. labor force that wishes to work, but is unable to find a job, as
measured by _________________________________________________________, is currently
_______________________________________________________________. The trend in this percentage
over the last 12 months has been___________________
________________________________________________________________________.
The overall effect of this trend implies that____________________________________
________________________________________________________________________.
Given these economic statistics, Economic Forecasters, Inc. (EFI) recommends
_____________________________________________________________________________________________
_____________________________________________________________________________________________
_____________________________________________________________________________________________
_____________________________________________________________________________________________
_____________________________________________________________________________________________
_____________________________________________________________________________________________
_____________________________________________________________________________________________
Signed,
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
EFI Economists
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