Download Measuring the Economy

*
Goal 9.01 Identifying the phases of the business
cycle and the economic indicators used to
measure economic trends and activities.
* I: Measuring Growth of an economy is done by
two factors.
* A: Real GDP: economy’s production after the
distortions of price increases have been
removed.
* B: The Business Cycle: the alternating upward
and downward movement of economic activity
of growth that a occurs during a growth trend.
*
* Contractions in the economy cause a recession:
real GDP levels off and begins to decline.
* Trough:
the lowest point in the business cycle.
* Recession: two quarters of declining output
* Depression: a deeper and longer recession; low
production, high unemployment, business
failures
* Cycle will begin again if economic activity can
rebound.
*
* Expansions: When GDP goes up and the
economy is growing and expanding.
Employment is low. Expansions are longer than
recessions.
* Recessions: take place when GDP goes down for
six straight months and most last longer.
* Average recessions last one year.
* Employment declines, production slows, and
people lose their jobs.
*
Other economists argue the US is still
in a recession or at least a slow
recovery. They point to high
unemployment, slow growth of GDP,
and stagnant wages as indicators.
* Depressions: If a recession becomes severe it
can turn into a depression. Huge numbers of
unemployed, acute shortages, and excess
capacity in manufacturing plants.
*
* Answer the following questions.
* What is Unemployment? Underemployment?
* What does civilian labor force mean?
* What is the definition of the unemployment
rate?
* How does a drop in the unemployment rate
affect the rise in total income?
* When the Federal Government spends more
than it takes in we call it a Deficit.
* When the Federal Government spends less than
it takes in in revenue it is called a Surplus.
* Phases of the Business Cycle: Review
* The top of the business cycle is called the
* peak.
* A boom is a very high peak, representing a big
* jump in output.
The downturn is the phenomenon of
* economic activity starting to fall from a peak.
* A recession is a decline in output that persists for
* more than two consecutive quarters in a year.
* A depression is a deep recession.
What connection is there between
periods of recession and periods of
unemployment?
* II: Economic Indicators that measure the
economy.
* Gross Domestic Product (GDP) is calculated by
adding up the value of this country’s annual
output of all final goods and services.
* Ex: the house, not the lumber, nails, etc.
* Ex: everything produced in that country; a Japanese
car produced in TN.
* Gross National Product (GNP) is a measure of
the market value of all goods and services by
Americans in one year.
* Ex. An American Oil Co. in Scotland
* Consumer Price Index (CPI) measures average
change in prices for items like housing, food,
etc.
* How do you calculate the CPI
* Used to calculate inflation
* CPI for 1979 was 72.6 and the CPI for 1980 was 82.4
* To calculate the inflation rate for 1980
* 82.4-72.6 =9.8 9 (then) 9.8 /72.6 =13.5%
* Therefore prices went up 13.5% in 1980
* Per Capita GDP is the value of what a person
produces in a year.
* It is calculated by dividing the GDP by the
number of people who live in a nation.
* Standard of Living measures prosperity and
wealth. Education, income, debt levels, and
housing quality contribute to this economic
indicator.
* III: Government Debt and Global Competition
* National Debt: the total amount a country has
borrowed plus interest on that debt.
* The US debt has reached the trillion dollar mark.
* Downsizing: when businesses cut their workforce
to cut costs and increase profits.
* Outsourcing: when another country, often
overseas, manages their operations with foreign
workers. Such as customer service or information
technology.
* IV: Cost-Push Inflation: is defined as persistent
rising general price levels brought about by rising
input costs. In general, there are three factors that
could contribute to cost-push inflation; rising
wages, increases in corporate taxes, and imported
inflation (when imported raw or partly finished
goods become more expensive, often as a result of
currency depreciation). For inflation to be costpush in nature, increases in input prices must affect
a large proportion of the country’s producers, so as
to be able to push up the general price.
* Recent US Federal Debt Numbers
* Gross Federal Debt Held by Public FY 2012 $16.7 trillion
$10.8 trillion FY 2011 $15.5 trillion $9.9 trillion FY 2010
$13.5 trillion $8.2 trillion FY 2009 $11.9 trillion $6.8 trillion
FY 2008 $10.0 trillion $5.3 trillion Gross Federal
* Debt is the total debt owed by the United States federal
government. It comprises “debt held by the public” and
“debt held by federal government accounts,” such as IOUs
owed to the Social Security trust fund. “Debt held by the
public” includes debt actually held by the public and
foreign governments, and also debt held by the Federal
Reserve System, i.e., monetized as part of the monetary
base.