Chapter 13: Measuring the Economy

Economic indicators

Statistics about economic activity

Gross domestic product (GDP)

measures the whole country's economic output

GDP Formula

C+I+G+NX=GDP

Market value

price people are willing to pay for a good

Final good

new goods ready for use

Intermediate good

goods used in production for final goods

Net exports (NX)

value of all exports minus the imports

Nominal GDP

measures outcome of an economy valued at current prices

Current dollars

current currency

Real GDP

measures the output of goods and services in constant dollars

Constant dollars

fixed exchange rate current in a specified year

Per capita GDP

GDP per person

Unemployment rate

% of labor force who is seeking work / doesn't have a job / recently laid off

Unemployment rate formula

# unemployed / # in labor force x 100

frictional unemployment

being between jobs. Just got laid off and is looking for a new one

Structural unemployment

time spent at a job is short

Seasonal unemployment

unemployment when businesses shut down for part of the year. Spans from weeks to months.

Cyclical unemployment

economic cycle of growth and decline

natural rate of unemployment

minimal # of unemployed while an economy is at full employment.

Discouraged workers

unemployed giving up on finding work

involuntary part-time workers

workers who prefer part-time workers

Underground economy

money from illegal activities.

Inflation

general increase of price for goods and services

Inflation rate

% increase of inflation

Price index

average change in price of a type of good

Consumer price index (CPI)

price index for a "market basket" of consumer services and goods

Nominal cost of living

cost in current price of goods and services needed

Real cost of living

cost in constant dollar price of goods and services needed

Nominal wages

wages based on current prices

Real wages

wages based on constant dollar prices

Creeping inflation

gradual inflation

Hyperinflation

extreme and rapid price increase

Deflation

general decrease of price for goods and services

Deflationary spiral

business slowdowns due to inflation, possible depression soon

Demand-pull inflation

an increase in overall demand causing inflation

Cost-push inflation

increasing the price of factors of production, causing inflation

Wage-price spiral

when workers want an increased wage due to inflation. While the employers do increase the wages, they increase pricing to balance it out.

Business cycle

recurring periods of growth and decline in an economy

Expansion

increase of economic activity during the first period of the business cycle

Peak

economic growth has reached its peak

Contraction

economic decline + falling GDP post peak

Trough

turning point after an economy falls, growing back into expansion

Leading economic indicators

used to forecast peak and trough in the business cycle

Lagging economics indicators

confirms when cycles end and when another will begin

Recession

decline of economic activity. Only a real recession if its 6+ months long

Inventory

merchandise and goods a business hands on hand

Depression

long economic failure. The "+" of "6+" in recession