1. How do economists measure a nation’s economic health?
Measuring the Economy
Chapter 13
Essential Question:
How do economists measure a nation’s economic health?

2. How big is the economy?
To measure “how big”…snake (inches/feet), steer (pounds), baseball production (batting average), academic production (GPA), doctor’s office (ht, wt, BP, temp, pulse) but how to measure an economy?
We use GDP = gross domestic product – value of all goods & services produced in a country during a time period (usually a quarter, or year)
GDP formula…
C + I + G + (X – I) = GDP
C = consumption
I = investments
G = government spending
(X – I) = (eXports – Imports). Also called NX = net exports.

3. What about inflation?
Inflation – yearly rise in prices – makes it hard to compare this year vs. say 20 years ago. Two measures…
Nominal GDP – measures GDP in “current dollars” (today’s prices)
Inflation is NOT pulled out, so comparing to other years is hard.
Real GDP – does NOT use current dollars, but uses “constant dollars”. This means they use a base year to pull out inflation.
GDP can then be compared from year to year.

4. Notice the base year…2000, Q1.

5. Per capita GDP = GDP ÷ population
What about population?
What if a country has lots of people vs. a country with just a few?
We use per capita GDP. Per capita – per person, so it’s…
Per capita GDP = GDP ÷ population
Left = nominal GDP Right = per capita GDP

6. Unemployment
Unemployment helps measure the economy. Low = good, high = bad
Unemployment rate -- % of labor force seeking employment
Employed – people in labor force & have a job
Unemployed – people in labor force who are jobless but looking
Not in labor force – eligible for labor force but not working or not looking (also students, retired, disabled, etc.)
Usual unemployment rate is 4 to 6%
Right now, it is states/unemployment-rate

8. 4 types of unemployment Frictional – when you’re “between jobs”
Structural – changes outdate your job or skills (new technology)
Seasonal – some jobs have slow periods
Cyclical – the economy has good times and hard times

9. Inflation Inflation is the rise in prices.
Inflation rate -- % increase in average price of goods/services per month or year
To measure this, we use CPI = Consumer Price Index
CPI uses a “market basket”, a group of common items purchased, to measure % changes
Suppose last year – CPI was $205
Suppose this year – CPI is $213
% change formula is (N – O) ÷ O N=new number, O=old number, so…
213 – 205 = ÷ 205 = (.039 x 100 is 3.9%)

10. Cont. We also use a “cost of living” index.
Nominal cost of living – cost for basic goods people need in today’s prices
Real cost of living – has inflation taken out, so now we can compare to earlier years
Inflation types
Creeping inflation – a slow steady rise, average is 3.4% per year
Hyperinflation – fast inflation, rare in U.S.
Deflation – drop in prices; good news is things are cheap, bad news is it’s bad for business
What’s the current U.S. inflation rate?