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Chapter 14
Economic Stability
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Economic Stability- anything that helps to
measure & determine the current condition
or health of our economy
There are 2 types of instability…
1. Recession- 6 straight months of a
negative GDP-the economy
2. Inflation- rapid increases in the general
price level. The economy is running too fast
Major Indicators
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GDP- Gross domestic Product-total market
value of all final goods & services produced
WITHIN the U.S. in a given year
1. When GDP rises the economy is doing
well
2. When GDP falls, less goods & services
are being produced
Just the facts
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1. includes only final goods & services
2. includes only things produced in the U.S.
3. Includes things that may be deemed as harmful
4. Does not account for changes in product quality
5. excludes business done in the black market
6. excludes non-market transactions i.e. a
carpenter who builds his own deck
7. inflation can distort the real growth ofGDP
GDP
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There are two ways to calculate GDP
1) The expenditure approach-tabulates the way
money is spent in the economy
A) consumer spending
B) Gross investment
C) Government Spending
D) Net Exports
C + Ig + G + Xn = GDP
GDP
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Income approach
A) wages & salaries
B) profits
C) rents
D) interest
E) taxes
F) Depreciation
All of these added = GDP
Unemployment
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Unemployment is the percentage of those
people in the “Labor Force” unable to find
jobs.
How do we define the labor force?
1. be at least 16 years old
2. be actively seeking work
3. can’t be institutionalized
Frictional
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Temporary
A. often referred to as wait unemployment
B. actually considered healthy for the
economy
C. Example Seasonal unemployment
Structural Unemployment
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people lose their jobs because they are
replaced with new technology, or they live
in the wrong place
Sometimes thought of as technological or
geographic unemployment
Cyclical Unemployment
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People lose jobs because of a recession
This is the greatest concern to the
government
My Unemployment Resource
Employment
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Full employment occurs when you have
95% of people working
Frictionally unemployed are not included
Fiscal Policy
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Governments use of taxation or spending
to fight inflation and recession
Can cut taxes in a recession
May raise taxes during inflation
Monetary Policy
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The Fed
Discount Rate
Reserve Ratio
Open market Operations
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