Download Ch_14_Measuring_The_Economys_Performance

Economics Chapter 13
National Income
Accounting

The measurement of the
national economy’s
performance.
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A measure of the amount of
goods and services
produced yearly by the
nation and the amount of
income people have to
spend.
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Gross Domestic Product (GDP)
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The broadest measure of the economy’s size.
The total dollar value of all final goods and
services produced in the nation during a single
year.
Includes all final products in four sectors:
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Consumer goods and services
Investment goods and services
Government goods and services
Net exports

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A measure of the economy that
subtracts depreciation from GDP.
NDP = GDP - Depreciation

A measure of the total amount of
income earned by everyone in the
economy.
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Wages and Salaries
Income of self-employed individuals
Rental income
Corporate profits
Interest on savings and other investments

A measure of the total income that
individuals receive before personal
taxes are paid.

A measure of the income remaining for
people to spend or save after all taxes
have been paid.
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Inflation
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A prolonged rise in the general price level
of goods and services.
Skews GDP
Deflation
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A prolonged decline in the general price
level.
Rarely happens

When is a dollar not a dollar?

When inflation occurs, the prices of goods
and services rise…therefore, the
purchasing power of the dollar goes down.

A dollar’s purchasing power is the real goods
and services that it can buy.
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Consumer Price Index (CPI)
Producer Price Index (PPI)
GDP Price Deflator

The measure of the change in price
over time of a specific group of goods
and services used by the average
household.

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Measures the percent increase every three
years over the base year.
Market Basket—the specific group of goods
and services analyzed. (90,000)

The measure of the change in price
over time that United States producers
have charged for their goods and
services.

Often an indicator if the CPI will rise.
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A price index that removes the effect of
inflation from GDP so that the overall
economy in one year can be compared
to another year.
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The new figure is called real GDP.
Real GDP is then compared to a base year
GDP.

Aggregate Demand is the total quantity
of all goods and services in the entire
economy demanded by all people.

Aggregate Demand is related to the price
level-the average of all the prices as
measured by a price index.

Aggregate Supply is the real domestic
output of producers based on the rise
and fall of the price level.

The equilibrium
price is where the
demand curve
intersects the supply
curve.

Business fluctuations are the ups and
downs in an economy.

The business cycle is changes in the
level of total output measured by real
GDP.
Growth
Peak or Boom
Contraction or Recession
Trough
Expansion or Recovery
Peak or Boom
Contraction or Recession
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Peak or Boom—period of prosperity
Contraction—Business activity slows down
Recession—Any period of at least two
quarters (6 months) during which real GDP
does not grow.
Trough—Where the downward direction of
the economy levels off.
Expansion or Recovery—The increase in total
economic activity following a trough.
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Business Investment
Government Activity
External Factors
Psychological Factors
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Some economists say that business
decisions are the key to business
fluctuations.
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Capital Investments
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Increase or Cut Back
Innovations—inventions and new
production techniques.

A number of economists believe that
the changing of policies by the federal
government are a reason for cycles.
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Policies on taxing and spending
Control over the money supply available in
the economy.
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Wars impact the economy.
Availability of raw materials (oil)
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Prospects of peace in an area can
impact the economy
Discovery of new oil reserves
War
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Trying to predict what will happen in
the economy in the coming months and
years.
Economic Indicators are the statistics
that measure variables in the economy,
such as stock prices or the dollar
amounts of loans to be repaid.
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Leading Indicators are
statistics that point to
what will happen in the
economy.

These lead to an overall
change in the business
activity—up or down.
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Economic indicators that usually change
at the same time as changes in the
overall business activity.
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Often lead to a contraction in the economy.
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These economic indicators seem to lag
behind overall business activity.
These give economists clues as to the
duration of the phases of the business
cycle.