Transcript Measuring the Economy - Jefferson Forest High School

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Students will identify gross domestic product.
Students will describe the relationship between
GDP and the business cycle
Students will explain how the unemployment
rate is determined
Students will analyze how the inflation rate is
determined
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Gross Domestic Product (GDP) - The market
value of all final goods and services produced
annually in a country. Measures the nation’s
total economic output
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Includes
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Dollar Value
 Consumers + Government + Business + Net Exports
 Total of the selling prices
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Final Goods and Services
 Products in the form sold to consumers
 Not in an intermediate form
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Products produced within a country’s borders
 Includes products produced by a foreign owned
company that produces the product in the US
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Produced in a calendar year – Jan1 – Dec 31 of a
given year
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GDP counts only new production and excludes
the following:
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Second hand transactions
 Sales of used cars
 Sales or homes constructed years ago
 Any other sales of previously produced products
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GDP counts only new production and excludes
the following:
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Transfer payments
 Welfare
 Social security
 Veterans benefits
 Unemployment compensation
 All these are considered nonproductive from an
economics standpoint
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GDP counts only new production and excludes
the following:
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Stock Market transactions
 Represent only the exchange of ownership are not
new production
Nonmarket Activities
 Excludes unpaid activities
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Homemakers
Child-rearing
Home repairs
It would be impossible to place dollar values on these
activities
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GDP counts only new production and excludes
the following:
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Underground activities
 Illegal gambling
 Stolen cars
 Illegal drug sales
 Under-the table or off-the-book transactions
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Business Cycle – the rise and fall of economic
activity through period of expansion and
recession
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Reflects the ups and downs of the nation’s real GDP
(GDP adjusted for changes in prices over time)
 Real GDP falling
 Recession
 Real GDP rising
 Recovery (expansion)
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Unemployment Rate – the percentage of the
civilian labor force that is actively seeking work
but is not employed
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Identifying the US Labor Force
Starts with the total US population 16 years or older
 Do not count those that are institutionalized(prison)
or in the military – they are subtracted out
 Leaves us with the total civilian noninstitutionalized
population (16 years and older)
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Identifying the US Labor Force
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Within the noninstitutionalized population (16 years
+) we have
 Nonlabor force
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Fulltime students
Parents who stay home to raise children
Retirees
Discouraged workers – have tried to get jobs in past, but
have given up
 Total Labor force – those who are willing and able
to work
 Employed
 Unemployed – want to work, but are unable to get a job
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Employed – people who have jobs
Unemployed – people age 16 or older actively
looking for a job but have not found one
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Does not include underemployed
 Working in a job the individual is overqualified for
 Working part time when full time is desired
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National Unemployment Rate
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Percentage of the US labor force that is unemployed
How rate is determined
 60,000 households selected to be representative of
the US population (sample of population)
 Each month the US government interview persons
in the sample group to determine what percentage
are unemployed
 Computation
 Unemployment Rate = Unemployed ÷ Civilian Labor Force
X 100
Recession
Recession
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Inflation – the increase in the average price
level for goods and services in the economy
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With inflation, money loses purchasing power
 Example – If inflation is 5%, a $100 item you
purchase this year will cost $105 next year
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Measuring Inflation
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Measured by the US government – Bureau of Labor
Statistics (BLS)
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Measuring Inflation
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Measurement tool used is the Consumer Price Index
(CPI)
 Uses a list of goods and services (called a market
basket) that are commonly bought by consumers
 Contains thousands of specific items that represent what
average urban households purchase
 Each month the Bureau of Labor Statistics (BLS)
update the prices of items in the basket and
calculate its cost that month
 Using a consistent group of goods and services
makes it possible to see how prices are changing
over time
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CPI Market Basket Categories
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Food and beverages – items purchased at the
grocery store
Housing – house prices, rentals
Apparel – clothing, shoes, etc.
Transportation
Medical care
Recreation – goods, events
Education and communication
Other
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Inflation Rate
Changes in the overall price of the CPI market basket
 Shows the percentage increase in the average price
of the economy’s goods and services
 Occasionally may show periods of deflation – a
period of decreasing prices
 Is due to demand being sluggish and occurs when
consumer spending is declining due to fear,
pessimism, or reduced income
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The rise and fall of economic activity through periods of
expansion and recession is known as the __________.
A.
B.
C.
D.
business cycle
percentage change
unemployment rate
consumer price index
The rise and fall of economic activity through periods of
expansion and recession is known as the __________.
A.
B.
C.
D.
business cycle
percentage change
unemployment rate
consumer price index
People age 16 years or older who are working in a job for
which they are overqualified for are said to be __________.
A.
B.
C.
D.
underemployed
full time student
nonlabor force
retired
People age 16 years or older who are working in a job for
which they are overqualified for are said to be __________.
A.
B.
C.
D.
underemployed
full time student
nonlabor force
retired
The percentage increase in the average price of the
economy’s goods and services is known as __________.
A.
B.
C.
D.
Market basket
Price index
Deflation rate
Inflation rate
The percentage increase in the average price of the
economy’s goods and services is known as __________.
A.
B.
C.
D.
Market basket
Price index
Deflation rate
Inflation rate
The percentage increase in the average price of the
economy’s goods and services is known as __________.
A.
B.
C.
D.
Price index
Dollar value
Business cycle
Market basket
The percentage increase in the average price of the
economy’s goods and services is known as __________.
A.
B.
C.
D.
Price index
Dollar value
Business cycle
Market basket
When the country’s GDP falls, the economy experiences a
__________.
A.
B.
C.
D.
peak
trough
recovery
recession
When the country’s GDP falls, the economy experiences a
__________.
A.
B.
C.
D.
peak
trough
recovery
recession