Economic Performance

National Income Accounting

is a measurement of the national economy’s performance, dealing with economic output

GDP

The broadest measure of the economy’s size is…. which is the total dollar value of all final goods and services produced in a nation in a single year.

net exports

In terms of foreign trade economists add exports to GDP, and subtract imports to calculate ...... the difference between what a nation sells to other countries and what it buys from other countries.

transfer payments

like welfare, unemployment and other payments made by the government to individuals because they are not exchanged for productive activities.

Inflation

is a prolonged rise in the general price level of final goods and services.

purchasing power

As inflation rises it decreases an individual’s..... that refers to the real goods and services that money can actually buy.

consumer price index

Every month the government takes a measurement of the average price level called the

market basket

The CPI measures a specific group of goods and services that the average household uses is called a

business cycle

The ups and downs of the economy are associated with the ......irregular changes in the level of total output measured by real GDP.

Peak

A business cycle begins with growth leading to an economic......a period of economic prosperity.

contraction

When real GDP levels off a decline or ....... of the economy begins to happen.

Recession

If a contraction lasts long enough, the economy falls into a.....where the real GDP does not grow for at least six months.

Depression

If a recession becomes really bad, it may lead to a....which leads to millions of people out of work, numerous business failures, and an economy operating far below capacity.

trough

However, the downward movement of the economy hits a.....
or the lowest point in a business cycle.

recovery/expansion

Increased economic activity that follows is called a .....or .....
The recovery happens until the economy hits another peak and a new cycle occurs.

Why is GDP the most important measure in National Income Accounting?

It measures the overall growth and health of the economy.

What is the inflation rate?

The percentage change in prices over time.

How do economists measure inflation?

they use the consumer price index.

What is a business cycle?

a period of economic growth followed by economic contraction.