1. Measuring the Economy’s Performance
Economics: Chapter 13
Measuring the Economy’s Performance

2. 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

3. 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

4. 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).

5. Section 2
Producer Price Index, these are general indexes for non-retail products.
Be able to compute price index from page 337.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.