Economic Measurements

When is an Economy Successful ?

Economic Measurements Accurate information about an economy is essential to the measurement of an economy. Countries use key measurements to measure their economic strength.

Employee Productivity Productivity is output per worker hour that is measured over a defined period of time (a week, month, or year). Productivity is a crucial factor in a country’s standard of living. Higher productivity, improves company’s profit

Ways To Improve Productivity 1. Invest in new equipment or facilities that allow workers to be more efficient 2. Provide additional training 3. Provide financial incentives 4. Reduce workforce and increase the responsibilities of those staying in the workplace

Gross Domestic Product (GDP) A measure of the goods and services produced using labor and property located within a country. Gross National Product (GNP) The total dollar value of goods and services produced by a nation, including goods produced abroad. With GNP, it doesn’t matter where it is produced!

Difference between GDP vs GNP With GNP, it is not where the production takes place but who is responsible for it.

Standard of Living A measurement of the amount of goods and services that a nation’s people have. Reflects their quality of life

Inflation Rate Inflation refers to rising prices. A low inflation rate is good (1-5%) because it shows that the economy is stable Double digit inflation devastates an economy (10 or higher) When inflation gets high money does not have the same value it did under times of lower inflation When inflation gets high, money losses its value

Inflation Rate Controlling inflation is one of a government’s major goals When inflation goes up many governments raise interest rates to reduce everyone’s ability to borrow money The rise in interest rates causes a slow-down in economic growth which helps to bring inflation down

Producer Price Index (PPI) Measures wholesale price levels in the economy. It is often a trend setter because the price increases are often passed along to the consumer When there is a drop in the PPI there is usually a drop in the CPI Consumer Price Index (CPI) Also called the cost of living index Measures the price increases in over 400 goods and services used by the average urban household Items such as food, housing, utilities, medical care, and transportation

The Unemployment Rate All nations chart unemployment or jobless rates The higher the unemployment rates the greater the chances of an economic slowdown The lower the unemployment the greater the chances for an economic expansion This rise and fall manipulates the economy because the number of people working, spending money, and paying taxes contributes to the economy and keeps the government from paying so much for social services

Business Cycle Expansion Recession Recovery Trough

Business Cycle Expansion/Prosperity – a period of economic growth and expansion (low unemployment, increased output of goods, and high consumer spending) Recession – a period of economic slowdown (rise in unemployment, fewer goods and services are produced, and consumer spending decreases) Depression/Trough – a period of prolonged and deep recession (very low consumer spending, unemployment is very high, and production of goods and services is very low) Poverty results Recovery – a period of renewed economic growth (reduced unemployment, increased spending, and moderate expansion by business)