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 DefinitionHow 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? 3.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 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 7.Complete the chart Type of UnemploymentDefinitionExample Frictional People changing jobs or seeking 1 st 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

8.Explain the natural rate of unemployment. Between 4-6%, jobs exist, not everyone in work force is matched Section What is inflation? % increase in average price level of goods and services 10.What is the CPI? Price index for a market basket of goods/services 11.What are the 3 types of inflation? Creeping – gradual increase since % annually Hyper – runaway, (Zimbabwe 100,000% in 2008) Deflation – gradual decrease in prices (Great Depression) 12.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 Create a drawing that illustrates how the business cycle works. 14. Complete the following Chart Characteristics of an expanding economyCharacteristics of a contracting economy Increasing GDP Decreasing unemployment Inflation generally increasing New resources Innovation Decreasing GDP Rising Unemployment Inflation rate decreasing

Section Why might an economy stop expanding and start contracting? Negative shock to economy, rise in interest rates, shortage of raw materials 16. 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