1. Ways that Economists Measure the Health of the Economy
Economic Indicators
Ways that Economists Measure the Health of the Economy

2. Gross Domestic Product (GDP)
The dollar value of all final goods and services produced within a country’s borders in a given year.
About $17 trillion per year in the United States (2014 est.)
Tuvalu = $35 million (2014 est.)

3. Nominal GDP Assumes $1 in 1900 is same as $1 in 2000
The dollar value of all final goods and services produced within a country’s borders in a given year, but NOT adjusted for inflation
Assumes $1 in 1900 is same as $1 in 2000

4. Real GDP
GDP adjusted for inflation (value of dollar is adjusted to reflect how purchasing power of the dollar has changed over time).
More useful than nominal GDP (because you can compare different time periods)
Video link: Federal Reserve Bank of St. Louis

5. Real GDP 1933 $600 Billion 1945 $1.6 Trillion 1990 $5.74 Trillion

6. GDP Growth Rate
Probably the most important statistic derived from GDP, shows how much more or less a country is producing than in previous years or quarters.
The most commonly used measure of how the economy is doing.
Shows what part of the business cycle we are in.

7. GDP per Capita Divides GDP by number of people in the country.
Measures the average amount each person PRODUCES in a year.
Roughly shows how productive a nation is.
Good for comparing economies of different countries.

8. Unemployment Rate
NORMAL RATE:
4-6% is considered “healthy”
CURRENT RATE:
4.7% (March 2017)
3.2% in Colorado!
The percentage of the nation’s labor force that is actively looking for work.
Computed by the Bureau of Labor Statistics polls a sample of about 50,000 families. (Which branch?)
Who isn’t counted? A: People who aren’t actively looking for work.
Examples of those NOT counted: college students; people who have given up and aren’t looking

9. Unemployment Rate 1934 25% September 2008 6.1%
May % March %

10. Consumer Confidence INDEX (CCI)
A measure of consumer attitude toward current economic conditions.
Adjusted monthly on the basis of a survey of about 5,000 households.
The index considers consumer opinion on both current conditions (40% of the index) and future expectations (the other 60%).
Normal consumer confidence: Based on a 100 score (based on 1985 data when the business cycle was not in a peak or a trough)

11. Consumer Confidence INDEX (CCI)

12. Consumer Price Index (CPI)
A measure of inflation
Determined by measuring the price of a standard group of goods meant to represent the typical “market basket” of a typical urban consumer.
Expressed in percentage (what % MORE consumers are paying relative to the last measure)
Computed each month by the Bureau of Labor Statistics (BLS). Which branch?

13. Typical “Market Basket”
Category
Examples
Food and drinks
Cereals, coffee, chicken, milk, restaurant meals
Housing
Rent, homeowner’s costs, fuel oil
Apparel and upkeep
Men’s shirts, women’s dresses, jewelry
Transportation
Airfares, new and used cars, gasoline, auto insurance
Medical care
Prescription medicines, eye care, physicians’ services
Entertainment
Newspapers, toys, musical instruments
Other goods and services
Haircuts, cosmetics, bank fees

14. Consumer Price Index (Inflation)
CURRENT CPI =
< 1% lower than 2014

15. Purchasing Power
The number of goods and services
that can be purchased with a unit of currency.
Take away = as prices go up (or wages go down), your purchasing power goes down

16. Discount Rate
Rate of interest that the Federal Reserve charges to loan money to other banks
Federal Reserve (the “Fed”) = the government bank that controls the supply of money
Affects how cheap or expensive it is to borrow money
Excessively high OR excessively low is BAD

17. Actions the Fed Can Take
The Fed can’t decide whether the government spends money. That’s the job of Congress, but…
The more money in circulation, the less the money is worth so prices seem higher (inflation). The FED can decrease the money supply to prevent inflation
The lower the interest rates, the more people will borrow. The FED can lower the discount rate to try to stimulate the economy.

18. Discount Rate

19. Poverty Rate
The percentage of people in America who live in households with income below the official poverty line (insufficient income to support a family)

22. The “Poverty Threshold”
Persons in Family Maximum total family income
1 $10,400
2 $14,000
3 $17,600
4 $21,200
5 $24,800
6 $28,400
For each additional person, add $3,600
SOURCE:  Federal Register, Vol. 73, No. 15, January 23, 2008, pp. 3971–3972.

23. New Housing Starts
The number of new homes being built at any given time

24. New Housing Starts (in thousands)

25. Dow Jones Industrial Average (DOW)
A measurement of how well the stock of 30 large US companies representing various industries is doing.

27. Income Inequality
The gap between the rich and poor