Intro Chapter 4 Economic Measurements

Measuring Economic Growth Economic Growth refers to a steady increase in production of goods and services. Economic Growth refers to a steady increase in production of goods and services. The total of all the goods and services that Americans produce is the output or production of our nation. The total of all the goods and services that Americans produce is the output or production of our nation. Gross Domestic Product-is the total dollar value of all final goods and services produced in our country during one year. It is the measure of how the economy is performing. Gross Domestic Product-is the total dollar value of all final goods and services produced in our country during one year. It is the measure of how the economy is performing. Three major categories of expenditures: What consumers spend for food, clothing, and housing; What consumers spend for food, clothing, and housing; What businesses spend for buildings, equipment, and supplies; What businesses spend for buildings, equipment, and supplies; What government agencies spend to pay employees and to buy supplies. What government agencies spend to pay employees and to buy supplies.

Gross Domestic Product (GDP)-cont, If the GDP increases from year to year, this is a good sign that our economy is growing and is healthy. If the GDP increases from year to year, this is a good sign that our economy is growing and is healthy. In order to make a comparison that is fair between years, we need to take the current prices and adjust them each year so that they are equal in value over a period of years. In order to make a comparison that is fair between years, we need to take the current prices and adjust them each year so that they are equal in value over a period of years. Base Year-means the year chosen to compare an item, such as price, to any other year. Base Year-means the year chosen to compare an item, such as price, to any other year. CONSTANT DOLLAR GDP- is the value of gross domestic product after taking out the effect of price changes. This is referred to as the real GDP. CONSTANT DOLLAR GDP- is the value of gross domestic product after taking out the effect of price changes. This is referred to as the real GDP.

Labor Productivity Productivity is measure in terms of the number of items produced per worker. Productivity is measure in terms of the number of items produced per worker. Productivity Increase-an increase in goods and services from the same amounts of labor.Productivity Increase-an increase in goods and services from the same amounts of labor. Our ability to produce more and more goods and services as our country developed has made it possible to reduce the number of hours in a workweek.Our ability to produce more and more goods and services as our country developed has made it possible to reduce the number of hours in a workweek.

The Business Cycle A Business Cycle is the movement of the economy from one condition to another and back again. Business cycles are the recurring ups and downs of the GDP.Business cycles are the recurring ups and downs of the GDP. The cycles are:The cycles are: Prosperity-is a phase of the business cycle when most people who want to work are working and businesses produce goods and services in record numbers.Prosperity-is a phase of the business cycle when most people who want to work are working and businesses produce goods and services in record numbers. Recession-is a period where demand begins to decrease, businesses lower production of goods and services, unemployment begins to rise, and GDP growth slows for two or more quarters of the calendar year.Recession-is a period where demand begins to decrease, businesses lower production of goods and services, unemployment begins to rise, and GDP growth slows for two or more quarters of the calendar year. The Ripple Effect is when a decline in one industry affects several other industries.The Ripple Effect is when a decline in one industry affects several other industries.

The Business Cycle-cont. Depression-is a phase marked by a prolonged period of high unemployment, weak sales of goods and services, and business failures. GDP falss rapidly during a depressionDepression-is a phase marked by a prolonged period of high unemployment, weak sales of goods and services, and business failures. GDP falss rapidly during a depression During the great depression ( ) 25% of of the American labor force was unemployed.During the great depression ( ) 25% of of the American labor force was unemployed. Recovery-is the phase in which unemployment begins to decrease, demand for goods and services increases, and GDP begins to rise again.Recovery-is the phase in which unemployment begins to decrease, demand for goods and services increases, and GDP begins to rise again.

Inflation and Deflation Inflation-is a sustained increase in the general level of prices.Inflation-is a sustained increase in the general level of prices. One type of inflation occurs when the demand for goods and services is greater than the supply.One type of inflation occurs when the demand for goods and services is greater than the supply. When a large supply of money, earned or borrowed, is spent for goods that are in short supply, prices increase.When a large supply of money, earned or borrowed, is spent for goods that are in short supply, prices increase. Even though wages may increase prices of goods usually exceed these modest increases.Even though wages may increase prices of goods usually exceed these modest increases. Deflation-means a decrease in the general level of prices.Deflation-means a decrease in the general level of prices. It usually occurs in periods of recession and depression. It usually occurs in periods of recession and depression. Prices of products are lower but people have less money to buy them. Between prices declined about 25%.Prices of products are lower but people have less money to buy them. Between prices declined about 25%.

Our Economic Future Serious economic problems exist within our economy that need to be solved.Serious economic problems exist within our economy that need to be solved. Many people do not have access to adequate health.Many people do not have access to adequate health. Some people do not have proper housing (Appalachian Service Project).Some people do not have proper housing (Appalachian Service Project). Crime and traffic problems.Crime and traffic problems. Too many people unemployed or do not have appropriate employment.Too many people unemployed or do not have appropriate employment. Having a good job is an important part of life for most people. Economic growth must increase continuously to maintain or increase out existing standard of living.