Download Unit 5 Measuring Performance

Unit 5- CH 12 & 13
Measuring Economic Performance
Measuring Economic Performance
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Economies are measured by looking at the Gross Domestic Product.
Business cycles reflect the expansion and contractions experienced by all types of
businesses and countries as well
Countries need to look at their unemployment and make changes to ensure growth
Rising prices work against the population of a country
If a country wants to positively affect its poor, it must “increase the pie”
KEY TERMS TO REMEMBER
Aggregate Demand – the amount of goods and services in the economy that will be purchased
at all possible price levels
Aggregate Supply – the amount of goods and services in the economy available at all possible
price levels
Capital Deepening – process of increase the amount of capital per worker
Depreciation – the loss of the value of capital equipment that results from normal wear and tear
Depression – a recession that is especially long and severe
Durable Goods – good that last for a relatively long time, such as refrigerators, cars, and DVD
players
Full Employment – the level of employment reached when there is no cyclical unemployment
(5%)
Unit 5- CH 12 & 13
Measuring Economic Performance
Gross Domestic Product (GDP) – the dollar value of all final goods and services produced
within a country’s borders in a given year
Nominal – GDP measured in current prices
Real – GDP expressed in constant, or unchanging, prices
Gross National Product (GNP) – the annual income earned by U.S. owned firms and U.S.
citizens
Hyperinflation – inflation that is out of control
Inflation – a general increase in prices
 Cost – push Theory – theory that inflation occurs when producers raise prices in order
to meet increased costs
 Demand – pull Theory – theory that inflation occurs when demand for goods and
services exceeds existing supplies
 Quantity Theory – theory that too much money in the economy causes inflation
Leading indicators – key economic variables that economists use to predict a new phase of a
business cycle
Non-durable Goods – goods that last a short period of time, such as food, light bulbs, and
sneakers
Per Capita GDP – GDP divided by the total population
Price Index – a measurement that show how the average price of a standard group of goods
changes over time
 Consumer Price Index (CPI) – a price index determined by measuring the price of a
standard group of goods meant to represent the “market basket” of a typical urban
consumer
 Producer Price Index (PPI) - a price index determined by measuring the price of a
standard group of goods meant to represent the costs to the producers
Purchasing Power – the ability to purchase goods and services
Recession – a prolonged economic contraction – at least 2 consecutive quarters
Stagflation – a decline in real GDP combined with a rise in the price level
Trough – the lowest point in an economic contraction, when real GDP stops falling
Underemployed – working at a job for which one is over-qualified, or working part-time when fulltime work is desired
Unemployment – those 16 or older who are actively looking for work
 Cyclical unemployment – unemployment that rises during economic downturns
and falls when the economy improves
 Frictional unemployment – unemployment that occurs when people take time
to find a job
 Seasonal unemployment – unemployment that occurs as a result of harvest
schedules or vacations, or when industries slow or shut down for a season
 Structural unemployment – unemployment that occurs when workers’ skill do
not match the jobs that are available
Unit 5- CH 12 & 13
Measuring Economic Performance
How is GDP calculated?
The basic formula for calculating GDP is:
GDP = C + I + G + (X-M)
C=
I =
G=
(X –M) =
Unit 5- CH 12 & 13
Measuring Economic Performance
(Source: Capstone – Exemplary Lessons for High School Economics)
Unit 5- CH 12 & 13
Measuring Economic Performance
(Source: Capstone – Exemplary Lessons for High School Economics)
Unit 5- CH 12 & 13
Measuring Economic Performance
(Source: Capstone – Exemplary Lessons for High School Economics)
Unit 5- CH 12 & 13
Measuring Economic Performance
Unit 5- CH 12 & 13
Measuring Economic Performance
Business Cycles
Expansion –
Peak –
Contraction –
Trough –
Business cycles are affected by four main economic variables:
1.
2.
3.
4.
business investment
interest rates and credit
consumer expectations
external shocks
a. disruptions in the oil supply
b. droughts
c. war
d. trade disputes
Unit 5- CH 12 & 13
Measuring Economic Performance
Factors Contributing to Long-Term Economic Growth
 Technological innovation (including technology
transfers from more developed nations)
 High investment levels in physical and human capital
 Strong incentives to save, invest, and increase
productivity (including property rights)
 High rates of savings (to permit high levels of
investment)
 Low inflation
 Political stability
 Free trade
 Slower rates of population growth

Decentralized decision-making in most sectors of the
economy
(Source - From Focus: Economic Systems, © National Council on Economic Education, New York, N
Unit 5- CH 12 & 13
Measuring Economic Performance
The Mysteries of Unemployment: How Can You Hide
Something So Macro? (See separate attachment)
Unit 5- CH 12 & 13
Measuring Economic Performance
Unit 5- CH 12 & 13
Measuring Economic Performance
Part 2: Questions for Discussion
1. What happened to inflation when planned economies began their transition to market
economies?
2. What happened to the rate of inflation as countries moved farther toward a market
economy?
3. Which group of countries has increased the share of output in its private sector the
most?
4. Which group of countries has increased the share of output in its private sector the
least?
5. Which group of countries has had the smallest growth in the money supply?
6. Which group of countries has had the largest growth in the money supply?
7. If a delegation of Group 4 countries asked you for advice on how to decrease their
1,547 percent inflation rate, what would you tell them? Support your answer.
Unit 5- CH 12 & 13
Measuring Economic Performance
KEY POINTS TO REMEMBER
1. There are several ways to evaluate a nation’s economic performance. Gross domestic
product (GDP) is the most important, despite its limitations.
2. Business cycles consist of successive periods of improvement and decline in a
macroeconomy.
3. Contributors to long-term growth include population, government, foreign trade, capital
deepening, saving and investing, and advances in technology.
4. The unemployment rate provides an important clue to the health of the entire economy.
5. The level of inflation in the economy can affect wages, purchasing power, and other
aspects of everyday life.
6. Even in a successful economy, millions of people remain poor. The question is to what
degree?
Questions to Master
1. What roles does saving play in the process of economic growth?_______________________
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2. How do patents encourage technological progress? _________________________________
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3. How does capital deepening contribute to economic growth? __________________________
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4. What are three causes of inflation, and how do they differ? ____________________________
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5. Which groups are most affected by poverty? Support your answer ______________________
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NOTES:
Unit 5- CH 12 & 13
Measuring Economic Performance
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