Civics - Economic Indicators

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Economic Indicators

GDP, Unemployment, Inflation

Macroeconomics

The study of the large economy as a whole - the study of the big picture

When was macroeconomics born?

The Great Depression

Why was macroeconomics created?

Measure health of whole economy; guide policies to fix problems

3 Major Goals of Countries

1. Promote economic growth

2. Limit unemployment

3. Keep prices stable (limit inflation)

GDP

• Gross Domestic Product

• Most important measure of growth

• Dollar value of all final goods and services produced within a country in one year

Dollar value

Measured in $

Final goods

GDP only counts NEW goods and services

Within a country

Measures production within a country’s borders

One year

Measures annual economic performance

Calculating GDP

Consumption + investment + government spending + net exports (exports - imports)

Consumption and investment

Expenditure on final goods and services

Government spending

Government expenditures on final goods and services

Net Exports

Imports subtracted because they are included in C, I and G

Standard of Living

Can be measured, in part, by how well the economy is doing; must be adjusted to reflect the size of the nation’s population

GDP per capita

GDP / population; identifies, on average, how many products and services are produced per person in a given country; the best measure of a nation’s standard of living

Inflation

• Rising general level of prices

• Reduces purchasing power of money

• Each dollar of income will buy fewer goods than before

Why is inflation bad?

• In general, high inflation is bad because banks don’t lend and people don’t save

  • Decreases investment and GDP

Why is deflation bad?

• Deflation is also bad because people will hoard money and assets

  • Decreases consumer spending and GDP

Unemployment

Workers that are actively looking for a job but aren’t working

Unemployment Rate

• percent of people in the labour force who want a job but aren’t working

• (# unemployed / # in labour force) * 100

The Labour Force

• At least 16 years old

• Able and willing to work

• Not institutionalized (in jails or hospitals)

• Not in military, in school full time, or retired

Criticisms of the Unemployment Rate

1. Discouraged workers: no longer looking for a job, they have given up

2. Labour force participation rate: percent of population in the labour force. If some of the labour force leaves, the unemployment rate falls

3. Underemployed Workers: someone who wants more hours, but can’t get them is still considered employed

4. Race/Age inequalities: the overall unemployment rate doesn’t show disparity for minorities and teenagers.

The Business Cycle

Describes the natural fluctuations in economic activity

• X-axis: Time

• Y-axis: Real GDP

Peak/Boom

When GDP stops rising, inflation is at its highest, unemployment is at its lowest.

• Economy: Good

• Inflation: High

• Unemployment: Low

Contraction

A period of economic decline, real GDP falls, inflation decreases, and unemployment increases.

• Economy: Declining

• Inflation: Falling

• Unemployment: Rising

Recession

6 consecutive months of dropping GDP

Depression

If dropping GDP exceeds 6 months

Trough

When GDP stops falling, inflation is at its lowest and unemployment is at its highest.

• Economy: Bad

• Inflation: Low (deflation)

• Unemployment: High

Deflation

Decrease in the general price level of goods and services in an economy.

Expansion

• Economy: Improving

• Inflation: Rising

• Unemployment: Falling

  • Period of economic growth