1. How is the Economy Doing?
We can look at 3 things to measure the economy:
1. GDP and the Business Cycle
2. Standard of Living
3. Inflation and CPI 1

2. Gross Domestic Product
GDP
Gross Domestic Product
total value, in dollars, of all the final goods and services produced in a country in a single year

4. If a contraction lasts longer than 6 months it is a
Peak/Boom: expansion stops and the economy reaches its lowest point; business is good and jobs are plentiful, profits are high
Contraction: the economy slows down, and demand for goods and services lessens; real GDP levels off and begins to fall
If a contraction lasts longer than 6 months it is a
Recession: businesses fail, profits fall, and unemployment rises
Depression: extremely bad recession
Trough/Bust: economy reaches its lowest point; period of less demand for goods and services and high unemployment; real GDP stops going down
Expansion/Recovery: GDP increases, most people have jobs, and businesses are doing well

5. What can the government do about a bad economy and high unemployment?
When the government steps in, it uses fiscal policy, which is changes in government spending or tax policies.
How would the government spending money (subsidy or stimulus check) affect the economy and unemployment?
How would increasing or decreasing taxes affect the economy and unemployment? 5

6. higher the GDP = the higher the standard of living
the quality of life measured on how the possession of necessities and luxuries are satisfied
higher the GDP = the higher the standard of living

8. Inflation continued increase of prices
Government can do little to control or prevent inflation.
What does inflation do to the value of the dollar?
Inflation decreases the value of the dollar. It takes more money to buy the same goods and services. 8

10. History of United States Postage Rates
(Rate for first-class postage for a one-ounce letter)
Date
Rate
July 6, 1932
3 cents
February 3, 1991
29 cents
August 1, 1958
4 cents
January 1, 1995
32 cents
January 7, 1963
5 cents
January 10, 1999
33 cents
January 7, 1968
6 cents
January 7, 2001
34 cents
May 16, 1971
8 cents
June 30, 2002
37 cents
March 2, 1974
10 cents
January 8, 2006
39 cents
December 31, 1975
13 cents
May 14, 2007
41 cents
May 29, 1978
15 cents
May 12, 2008
42 cents
March 22, 1981
18 cents
May 11, 2009
44 cents
November 1, 1981
20 cents
January 22, 2012
45 cents
February 17, 1985
22 cents
January 27, 2013
46 cents
April 3, 1988
25 cents
January 26, 2014
49 cents

12. Put the following 8 people into the appropriate category.
WORSE OFF
SAME
BETTER OFF
Put the following 8 people into the appropriate category.

13. How Does Inflation Affect the Following Individuals?
Henry received a 1 percent pay increase last year, a 10 percent pay increase this year, and no other increases in his wages. Over that time, the inflation rate averaged 3 percent per year. With inflation, is Henry financially better off, worse off, or the same?
Kayla is 75 years old and has a savings account to use in her retirement years. Each month she’s pleased to see the interest added to her savings account balance. The account pays an annual percentage rate of 2 percent. The current annual inflation rate is 4 percent. With inflation, is Kayla financially better off, worse off, or the same?
Kasean has worked at the same job for five years. During that time, he received a 1 percent pay increase one year, a 3 percent increase in another year, and no other increases in his wages. Over the same time, the inflation rate has averaged 3 percent per year. With inflation, is Kasean financially better off, worse off, or the same?

14. Robert thinks he has a good retirement plan because he can count on an annual increase that matches the inflation rate. With inflation, is Robert financially better off, worse off, or the same?
Stephanie’s retirement income is fixed at $24,000 per year. She feels financially secure knowing exactly how much her income will be each month and that her purchasing power will remain fixed. She is not planning to change her spending patterns. The current inflation rate is 3 percent. With inflation, is Stephanie financially better off, worse off, or the same?
Reanna borrowed $1,000 from her sister two years ago. Today she wrote her sister a check for $1,010—$1,000 for the loan and $10 for interest. The inflation rate has averaged 3 percent each year since she borrowed the money. With inflation, is Joann financially better off, worse off, or the same?

15. Jenishia loaned her friend $5,000 last year and was paid back $5,020 at the end of this year. Jenishia thought her friend was generous to add an extra $20 for interest. The inflation rate for the two years averaged 2 percent per year. With inflation, is Jenishia financially better off, worse off, or the same?
Ben has saved money for four years to pay for a new car. He has carefully tucked away part of his earnings each week in a cookie jar. During this four-year period, inflation has caused the price of new cars to increase about 3 percent each year. With inflation, is Ben financially better off, worse off, or the same?

16. WORSE OFF BETTER OFF Jenishia Henry Robert Kayla Reanna Ben Kasean
SAME
BETTER OFF
Jenishia
Henry
Robert
Kayla
Reanna
Ben
Kasean
Stephanie

17. To keep track of inflation, the government samples prices every month of 400 products commonly used by consumers this makes the Consumer Price Index (CPI).

18. What’s included in the CPI?
The CPI is divided into 8 categories of goods:
Food and beverages
Housing
Apparel
Transportation
Medical care
Recreation
Education and communication
Other goods and services

19. The Eight Major Groups of the CPI Food and beverages Housing Apparel
Transportation
Medical care
Recreation
Education and communication 
Other goods and services
Examples
Breakfast cereal
Milk
Coffee
Chicken
Wine
Full-service meals
Snacks

20. The Eight Major Groups of the CPI Food and beverage Housing Apparel
Transportation
Medical care
Recreation
Education and communication 
Other goods and services
Examples
Rent of primary residence
Owners' equivalent rent
Fuel oil
Bedroom furniture

21. The Eight Major Groups of the CPI Food and beverage Housing Apparel
Transportation
Medical care
Recreation
Education and communication 
Other goods and services
Examples
Men’s shirts
Women’s sweaters
Women’s dresses
Jewelry

22. The Eight Major Groups of the CPI Food and beverage Housing Apparel
Transportation
Medical care
Recreation
Education and communication 
Other goods and services
Examples
New vehicles
Airline fares
Gasoline
Motor vehicles
Insurance

23. The Eight Major Groups of the CPI Food and beverage Housing Apparel
Transportation
Medical care
Recreation
Education and communication 
Other goods and services
Examples
Prescription drugs
Medical supplies
Eyeglasses
Eye care
Hospital services

24. The Eight Major Groups of the CPI Food and beverage Housing Apparel
Transportation
Medical care
Recreation
Education and communication 
Other goods and services
Examples
Televisions
Toys
Pets and pet products
Sports equipment
Admissions

25. The Eight Major Groups of the CPI Food and beverage Housing Apparel
Transportation
Medical care
Recreation
Education and communication 
Other goods and services
Examples
College tuition
Postage
Telephone services
Computer software
Computer accessories

26. The Eight Major Groups of the CPI Food and beverage Housing Apparel
Transportation
Medical care
Recreation
Education and communication 
Other goods and services
Examples
Tobacco
Smoking products
Haircuts
Manicures
Funeral expenses

27. Services Inflation CPI BLS Consumer Inflation rate Goods
Actions that satisfy consumers’ wants
Agency that collects economic data
Percentage change in the average price level
Person who uses goods and services
Measures the change in the price level from one time period to another
Objects that satisfy consumers’ wants
A general rise in prices