Measuring the Economy Economics Chapter 13

How do Economists Measure a Nation’s Economic Health? 1. What is GDP and what is included in its measurement? Market value of all goods and services produced within a given country during a given time (total output) 2. Write an equation to calculate GDP C (Consumption) + I (investment) + G (govt) + [X-M] (net exports) 3. Complete the following Chart   Definition How it’s measured Nominal GDP Output of an economy valued at today’s prices Current $ Real GDP Output of an economy valued in constant $  Constant $ (Current in a specific year) Per Capita GDP GDP Per Person  GDP population

How do Economists Measure a Nation’s Economic Health? What is the literacy rate and how is it usually related to a country’s GDP? % of people in a country that an read and write Higher GDP is related to a higher literacy rate 4. What is the infant mortality rate and how is it affected by a country’s GDP? rate at which babies die in their first year low GDP leads to high infant mortality rate high GDP = low infant mortality rate

Section 13.3 What is the unemployment rate? Measures the % of the population that is jobless and seeking work 6. How is the unemployment rate calculated? Govt uses survey method. Bureau of Labor Statistics Eligible workers classified as employed, unemployed, or not in labor force (students, retired, disabled, housewives)

Types of Unemployment Complete the chart Seasonal Type of Unemployment Definition Example    Frictional People changing jobs or seeking 1st job Recent college graduate  Structural People lose jobs due to new technology, reduction in demand Automated machine, robots!  Seasonal People unemployed due to seasonal work Park Ranger Construction workers farmers  Cyclical People lose jobs during economic decline Recession or depression

Section 13.4 Explain the natural rate of unemployment. Between 4-6%, jobs exist, not everyone in work force is matched Section 13.4 What is inflation? % increase in average price level of goods and services What is the CPI? Price index for a market basket of goods/services What are the 3 types of inflation? Creeping – gradual increase since 1941 3% annually Hyper – runaway, (Zimbabwe 100,000% in 2008) Deflation – gradual decrease in prices (Great Depression) What are the main causes of inflation? Demand-pull = increase in overall demand forces prices up Cost-push = rising costs of factors of production push prices higher

Section 13.5 Create a drawing that illustrates how the business cycle works. 14. Complete the following Chart Characteristics of an expanding economy Characteristics of a contracting economy Increasing GDP Decreasing unemployment Inflation generally increasing New resources Innovation    Decreasing GDP Rising Unemployment Inflation rate decreasing

Section 13.5 Why might an economy stop expanding and start contracting? Negative shock to economy, rise in interest rates, shortage of raw materials What is the difference between a recession and a depression? Recession – decline in economic activity lasting at least 6 months Depression – longer recession, GDP plunges, high unemployment