Chapter 13: Measuring the Economy

inflation

an increase in the overall price level of goods and services produced in an economy

hyperinflation

an extreme and rapid rise in the price of goods and services

economic indicators

statistics that help economists judge the health of an economy

gross domestic product

the market value of all final goods and services produced within a country during a given period of time

Market value

the price buyers are willing to pay for a good or service in a competitive marketplace.

intermediate goods

a good used in the production of a final good; intermediate goods are not included in the calculation of GDP

net exports

the value of all exports minus all imports

Nominal GDP

a measure of a country's economic output (GDP) valued in current dollars; nominal GDP does not reflect the effects of inflation

Current dollars

the value of a dollar in the year it is spent; a measure of the dollar's value that reflects current purchasing power, without taking inflation into account

Real GDP

a measure of a country's economic output (GDP) valued in constant dollars; real GDP reflects the effects of inflation

constant dollars

the value of the dollar fixed at a specified base year; a measure of the dollar's value adjusted for inflation to reflect purchasing power over time

Per capita GDP

a nation's real GDP divided by its population; a measure of average economic output per person

informal economy

a sector of the economy that operates without government regulation or monitoring and is not officially recorded or taxed; the informal economy is not included in the calculation of GDP

literacy rate

the percentage of people in a country who can read and write

life expectancy

the number of years, on average, that a person is expected to live

infant mortality

the rate at which babies die during their first year of life; a key indicator of a nation's health and well-being

unemployment rate

the percentage of the labor force that is not employed but is actively seeking work

frictional unemployment

a type of unemployment that results when workers are seeking their first job or have left one job and are seeking another

Structural unemployment

when advances in technology reduce the demand for certain skills.

Seasonal unemployment

when businesses shut down or slow down for part of the year

cyclical unemployment

a type of unemployment that results from a period of decline in the business cycle; unemployment caused by a contraction

natural rate of unemployment

the percentage of the labor force without work when the economy is at full employment; a condition in which the economy is strong and there is no cyclical unemployment

discouraged workers

unemployed workers who have ceased to look for work; discouraged workers are not considered part of the labor force and are not factored into the unemployment rate

involuntary part-time worker

people who are unable to find full-time jobs, settle for part-time employment

underground economy

a sector of the economy based on illegal activities, such as drug dealing and unlawful gambling

inflation rate

the percentage increase in the average price level of goods and services from one month or year to the next

price index

a measure of the average change in price of a type of good over time

consumer price index

a measure of price changes in consumer goods and services over time; the CPI shows changes in the cost of living from year to year

cost-of-living index

another term for the consumer price index

nominal cost of living

the cost in current dollars of all the basic goods and services needed by the average consumer

real cost of living

the cost in constant dollars of all the basic goods and services needed by the average consumer; the nominal cost of living adjusted for inflation

business cycle

a recurring pattern of growth and decline in economic activity over time

expansion

a period of economic growth

peak

the highest point of an expansion, or period of economic growth; a peak is followed by economic decline

contraction

a period of general economic decline marked by falling GDP and rising unemployment

trough

the lowest point of a contraction

leading economic indicators

measures that consistently rise or fall several months before an expansion or a contraction begins

lagging economic indicators

measures that consistently rise or fall several months after an expansion or contraction begins

recession

a period of declining national economic activity, usually measured as a decrease in GDP for at least two consecutive quarters (six months)

Inventory

merchandise that companies or stores have on hand

depression

a prolonged economic downturn characterized by plunging real GDP and extremely high unemployment

The real GDP allows us to compare the total output of an economy from year to year because it

measures the output of an economy in constant dollars.

Economists use per capita GDP to compare

the standards of living of two or more countries.

The Bureau of Labor Statistics uses the consumer price index to

track inflation.

What is the order of the four phases of the business cycle?

expansion, peak, contraction, trough

The Census Bureau's monthly estimate of housing starts is a

leading economic indicator.

The U.S. Patent and Trademark Office was established to protect

intellectual property.

Consider these two books:

The Jungle By Upton Sinclair

Unsafe at Any Speed By Ralph Nadar

Public interest in these books led to the passage of laws to protect

consumers.

Which of these is a common resource?

roads

Business investment is most likely to increase during which phase of the business cycle?

expansion

Why is consumer confidence important to the business cycle?

Confident consumers purchase more, increasing business profits and employment.