Ways that Economists Measure the Health of the Economy Economic Indicators Ways that Economists Measure the Health of the Economy

Gross Domestic Product (GDP) The dollar value of all final goods and services produced within a country’s borders in a given year. About $17 trillion per year in the United States (2014 est.) Tuvalu = $35 million (2014 est.)

Nominal GDP Assumes $1 in 1900 is same as $1 in 2000 The dollar value of all final goods and services produced within a country’s borders in a given year, but NOT adjusted for inflation Assumes $1 in 1900 is same as $1 in 2000

Real GDP GDP adjusted for inflation (value of dollar is adjusted to reflect how purchasing power of the dollar has changed over time). More useful than nominal GDP (because you can compare different time periods) Video link: Federal Reserve Bank of St. Louis

Real GDP 1933 $600 Billion 1945 $1.6 Trillion 1990 $5.74 Trillion

GDP Growth Rate Probably the most important statistic derived from GDP, shows how much more or less a country is producing than in previous years or quarters. The most commonly used measure of how the economy is doing. Shows what part of the business cycle we are in.

GDP per Capita Divides GDP by number of people in the country. Measures the average amount each person PRODUCES in a year. Roughly shows how productive a nation is. Good for comparing economies of different countries.

Unemployment Rate NORMAL RATE: 4-6% is considered “healthy” CURRENT RATE: 4.7% (March 2017) 3.2% in Colorado! The percentage of the nation’s labor force that is actively looking for work. Computed by the Bureau of Labor Statistics polls a sample of about 50,000 families. (Which branch?) Who isn’t counted? A: People who aren’t actively looking for work. Examples of those NOT counted: college students; people who have given up and aren’t looking

Unemployment Rate 1934 25% September 2008 6.1% May 2009 9.5% March 2016 4.9%

Consumer Confidence INDEX (CCI) A measure of consumer attitude toward current economic conditions. Adjusted monthly on the basis of a survey of about 5,000 households. The index considers consumer opinion on both current conditions (40% of the index) and future expectations (the other 60%). Normal consumer confidence: Based on a 100 score (based on 1985 data when the business cycle was not in a peak or a trough)

Consumer Confidence INDEX (CCI)

Consumer Price Index (CPI) A measure of inflation Determined by measuring the price of a standard group of goods meant to represent the typical “market basket” of a typical urban consumer. Expressed in percentage (what % MORE consumers are paying relative to the last measure) Computed each month by the Bureau of Labor Statistics (BLS). Which branch?

Typical “Market Basket” Category Examples Food and drinks Cereals, coffee, chicken, milk, restaurant meals Housing Rent, homeowner’s costs, fuel oil Apparel and upkeep Men’s shirts, women’s dresses, jewelry Transportation Airfares, new and used cars, gasoline, auto insurance Medical care Prescription medicines, eye care, physicians’ services Entertainment Newspapers, toys, musical instruments Other goods and services Haircuts, cosmetics, bank fees

Consumer Price Index (Inflation) CURRENT CPI = < 1% lower than 2014

Purchasing Power The number of goods and services that can be purchased with a unit of currency. Take away = as prices go up (or wages go down), your purchasing power goes down

Discount Rate Rate of interest that the Federal Reserve charges to loan money to other banks Federal Reserve (the “Fed”) = the government bank that controls the supply of money Affects how cheap or expensive it is to borrow money Excessively high OR excessively low is BAD

Actions the Fed Can Take The Fed can’t decide whether the government spends money. That’s the job of Congress, but… The more money in circulation, the less the money is worth so prices seem higher (inflation). The FED can decrease the money supply to prevent inflation The lower the interest rates, the more people will borrow. The FED can lower the discount rate to try to stimulate the economy.

Discount Rate

Poverty Rate The percentage of people in America who live in households with income below the official poverty line (insufficient income to support a family)

The “Poverty Threshold” Persons in Family Maximum total family income 1 $10,400 2 $14,000 3 $17,600 4 $21,200 5 $24,800 6 $28,400 For each additional person, add $3,600 SOURCE:  Federal Register, Vol. 73, No. 15, January 23, 2008, pp. 3971–3972.

New Housing Starts The number of new homes being built at any given time

New Housing Starts (in thousands)

Dow Jones Industrial Average (DOW) A measurement of how well the stock of 30 large US companies representing various industries is doing.

Income Inequality The gap between the rich and poor