Measuring the Economy’s Performance

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Measuring the Economy’s Performance. National Income Accounting.

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Presentation transcript:

Measuring the Economy’s Performance Economics: Chapter 13 Measuring the Economy’s Performance

Section 1: National Income Accounting National income accounting, the area of economics that deals with the overall economy’s income and output. Gross Domestic Product is measured in four areas. Consumer goods Business, or producer, goods Government goods Net exports

Section 1 Income is also a measure of GDP. 1. Wages earned 2. Interest received 3. Rents that are earned on houses or businesses. 4. Profits that businesses make Personal income is the pay before taxes Disposable Personal Income is the amount after taxes

Section 2: Correcting Statistics for inflation Inflation, the prolonged rise in the general price level of goods and services. Deflation, the prolonged decline of general price level of goods and services Both affect a consumers purchasing power Consumer Price index, measures the change in price over time with specific goods or services (Market Basket).

Section 2 Producer Price Index, these are general indexes for non-retail products. Be able to compute price index from page 337.

Section 3: Aggregate Supply and Demand Aggregates, the summation of all parts of the economy. Aggregate Demand, Quantity demanded of all goods and services and the average of all prices. That relationship is plotted on the Aggregate Demand Curve.

Section 3 Aggregate Supply, if the prices rise overall and wages do not there is more profit to be made. Supply will increase overall. Aggregate Supply Curve, How the relationship between price and output can be plotted.

Section 4: Business Fluctuations The ups and downs of the economy. These are not regular cycles because of all the factors involved. Peak or boom, a period of prosperity. Contraction, a downturn in the economy. Recession, two quarters of no GDP growth.

Section 4 Depression, millions out of work and businesses fail. Trough, lowest point in the business cycle. Expansion or recovery follows. 1930’s, the Great Depression. 80’s were a down market followed by the prosperous 90’s.

Section 5: Causes and Indicators of Business Fluctuations 1. Business investment, innovations can lead to short term increases. 2. Government activity, taxing and spending. 3. External factors, wars, drought. 4. Psychological Factors, prospects of peace can be positive.

Section 5 Economic indicators, their activity seems to lead to change in overall business activity. Positive or negative. Lagging indicators, how long will a business cycle last.