MECH 3360 - Economic Indicators

Economics - Lecture 4

Define Gross Domestic Product (GDP)

GDP is the dollar value of the goods and services produced in a specific period. The larger the growth, the better the economy is doing. It is also considered to be a snapshot of the economy at a certain point in time.

Four major expenditure categories are totaled for GDP. Name each one.

Consumption, investment, government purchases, and net exports of goods and services.

Define unemployment rate.

Unemployment rate is the amount of people from the available pool of labor that are unable to find work.

When is it generally considered that the economy is improving?

When employment rises and unemployment falls.

Define inflation.

Inflation is the decline of purchasing power of a given currency over time.

The consumer price index (CPI), is used to calculate inflation rate. However, Core CPI is generally regarded as a more reliable and stable index in comparison. Why is this so?

Core CPI ignores volatile expenditures such as gas, raw materials, and electricity.

Explain what the producer price index is. What is it used for?

The producer price index, PPI, is a measurement that tracks price inflation, or deflation, for raw materials used by the manufacturing sector. It is used for assessing the cost pressures that manufacturers have to face.

A strong, healthy stock market is essential to a healthy economy. What benefits does a strong stock market bring?

It boosts sentiment and adds to the wealth of consumers/businesses, while makes it easier to raise capital for investment.

What is demand?

Demand is the economic principle that refers to a consumers desire and willingness to pay for a good or service.

What is disposable income?

It is defined as the total amount of household income that is available for spending after paying income taxes.

How is disposable income related to demand?

Changes in personal disposable income influences how much consumers can spend on items, leading to a stronger or weaker demand.

What is consumer confidence?

Consumer confidence is the measurement of consumers levels of optimism in the state of the economy.

Consumer confidence is a crucial indicator of what?

It indicates near-term sales for consumer product companies, as well as where the broad spectrum of the economy is headed due to its significance with demand.

The consumer confidence index is constructed on the bases of four questions. What are these four questions?

How do you view your households current and expected financial position, your short term employment outlook, and is it a good time to make a major purchase?

What does high confidence in the economy signify? High confidence in the economy usually results in what?

It signifies that people feel good about the economy and are confidence in finding employment or reaching their goals financially. This is usually accompanied with higher spending and borrowing.

The long-term interest rate for housing declines. What ends up happening?

Housing activity increases, stimulating demand for household purchases.

What affects long-term interest rates?

The inflation or mortgage rate are examples of what can affect long-term rates.

What is the prime rate? How does it compare to consumer rates?

The prime rate is the interest rate banks charge on loans to their biggest and best customers. Consumer rates are often fixed slightly above the prime rate.

What is the Annual Percentage Rate? (APR) What does it include?

The APR is a way of measuring the full cost a lender charges per year for funds. Being used to compare the borrowing costs from different lenders, it includes other costs such as the broker fee and mortgage insurance.