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.