2.1 - Economic Activity

Measuring economic activity

Economic measurement

  • Economic strength can be measured using economic indicators

    • gross domestic product (GDP)

    • inflation

    • Interest rates

    • unemployment rate

    • stock and bond markets

  • GDP (gross domestic product) - the market value of all final products produced in a country during a specific time period

    • also known as economic output

    • measured in dollars

  • per capita GDP is GDP of a nation divided by its population

  • To measure GDP, ass the total amount of money spent on goods and services

    • consumer spending - everything ppl buy for their own use

    • business spending - all purchases made by business for capital goods and construction

    • government spending - spending by national, state, and local governments

    • net exports - a country’s export minus imports

      • when net exports is negative, we get more imports than exports

  • GDP changes over time

    • Economic growth rate shows amount and direction of change

  • Inflation - the general rise in prices throughout an economy

  • Inflation rate - the rate of change in prices calculated on a monthly or yearly basis

  • consumer price index (CPI) - a measure of average prices paid by consumers for consumer goods and services

  • deflation - a general decline in prices throughout an economy

  • Rate = %

  • Interest - the amount a borrower pays to a lender for a loan

  • interest rate - the cost of a loan

    • expressed as a percent of the amount borrowed

    • determined by supply and demand

  • labor force - all the ppl in a nation who are capable of working and want to work

    • two categories: employment and unemployment

  • unemployment rate - the percentage of the civilian labor force that is unemployed

  • full employment - every person willing and able to work has a job

  • productivity - a measure of a worker’s production in a specific amount of time, such as an hour/day/week.

    • can lead to higher standard of living

  • specialization - focusing on the production of specific goods so that more products can be produced with the same amount of labor

    • applies to production of both nations and individuals

  • Stock market - a system in the marketplace for buying and selling stocks

    • stock - part ownership of a company

    • values in stock markets go up and down

  • bond - a certificate of debt issued by an organization or government

    • can be traded among investors

    • interest rates change every day

Business Cycle

  • Business cycle - periods of expansion and contraction in the economy

  • four stages of the business cycle:

    • expansion - economy is growing and the GDP is rising

    • Peak - end of expansion; highest point in business cycle

    • recession - significant decline in total output, income, employment, and trade in an economy.

      • depression - period of a severe and long-lasting economic contraction

    • trough - lowest stage of a business cycle; marks end of a recession