Measuring Economic Activity in a Changing World Chapter 3

Measuring a Nation’s Economy Economic indicators measure things like how much a country is producing, whether its economy is growing, and how it compares to other countries.

Gross Domestic Product The total value of the final goods and services produced in a country in a given year is called its gross domestic product (GDP).

Calculation of GDP Economists include four main areas in calculating the GDP: Consumer goods and services (C) Business goods and services (I) Government goods and services (G) Goods and services sold to other countries (EX) GDP= C+I+G+EX

Standard of Living The standard of living is the amount of goods and services the average citizen can buy.

GDP Analysis Figure 3.1 GROSS DOMESTIC PRODUCT The gross domestic product (GDP) is the output of goods and services produced in a country. What percentage did the GDP increase from the end of Year 2 to the beginning of Year 3?

Individual Assignment Activity- Using the same method that is used to compile the Gross Domestic Product, represent your day with a pie chart. The GDP represents the output of the country; your output, for instance, might include two hours of homework, one hour of goofing off, one hour of musical instrument practice, and so on. Total up everything you do in one day (the hours should add up to 24) and calculate the percentages. Think of it as your Gross Personal Product.

Gross Domestic Product Graphic Organizer Graphic Organizer Gross Domestic Product Goods and services sold to other countries Consumer goods and services Business goods and services Government goods and services Gross Domestic Product + + + =

Unemployment Rate The unemployment rate measures the number of people who are able to work but don’t have a job during a given period of time.

Reasons for Unemployment There are different reasons for being unemployed, including: Temporary Seasonal Changes in industry Economic slow down The worst type of unemployment occurs when the entire economy slows down.

Inflation Rate Inflation is a general increase in the cost of goods and services. How it happens: As demand for products rise…..prices rise. To pay for higher prices…..workers want higher wages. To pay the higher wages…prices rise again! Really bad-----hyperinflation Deflation is a general decrease in the cost of goods and services.

The Business Cycle Business Cycle- rise and fall of economic activity over time. The four phases of the business cycle are: Prosperity Recession Depression Recovery

Prosperity Prosperity is a peak of economic activity.

Recession During a recession, economic activity slows down. There is a general drop in productivity and the GDP declines.

Depression A deep recession that affects the entire economy and lasts for several years is called a depression. Between 1929 and 1933, GDP fell from approximately $103 billion to $55 billion.

Recovery A rise in business activity after a recession or depression is called a recovery.

What are the four phases of the cycle? Figure 3.2 BUSINESS CYCLE MODEL The repeated rise and fall of economic activity over time is called a business cycle. What are the four phases of the cycle?

Vocab Budget deficit- govt. spending is more than taxes it collects. Budget surplus The total amount of money a government owes is its national debt.

The Ripple Effect When a recession occurs in one industry and spreads to another.