Measuring the Economy

Bell Ringer Write Out Question + Answer Which of these best explains why state government leaders must carefully evaluate costs and benefits when developing budgets? Taxes can usually be increased to meet needs. Demand for services often exceeds tax revenues. Demand for services is usually satisfied by federal spending. State tax revenues are often matched by federal funds. Which of these best reflects how the federal government manages the economy through fiscal policy? taxing and spending buying and selling securities controlling the money supply controlling interest rates

Objectives 1. Students will examine the business cycle. 2. Students will examine the different tools used to measure the United States economy.

Measuring the Economy What makes a baseball card valuable? Fame/Popularity of the Player Scarcity (small supply) No Name Error: $600 With Name Fixed: $2 Frank Thomas

Measuring the Economy Mint Condition Topps Mickey Mantle Rookie Card $72,000! If Topps had printed an extra 30,000 and pulled them out of a vault today, what would happen to the value of the one’s already out there? Their value would decrease

The Business Cycle Increase in jobs and spending Consumers spend their money to buy products then production increases Lots of jobs and money Spending slows and jobs begin to decrease Increase in jobs and spending Now, think about the economy. If prices of goods and services changed like the value of the cards, how would it affect us? The economy is constantly changing. It follows an up and down pattern called the business cycle. How do we know if the economy is prosperous or in a depression? Hard to find a job and money is tight

3 Economic Goals of Government 1) Full Employment Everyone has a job 2) Price Stability Prices do not go up or down dramatically 3) Economic Growth Production and Consumption increases What happened to the value of baseball cards when more were printed? The value went down. The same is true for the economy and money. If the government printed more money, there is more money in circulation and the value of the dollar goes down. As a result consumers would not be able to buy as many goods and services with same amount of money. To ensure a health economy the government wants 3 things…All three of these will keep the economy healthy.

2 Conditions the Government Monitors Both of these are BAD: 1.Inflation The increase in the cost of goods and services Why should you care? The value of your $$$ goes down and it takes more $$$ to buy things. 2.Recession A slowdown in the economy Government addresses this problem through fiscal policy Fiscal Policy is government taxing and spending

3 Ways to Measure the Economy Gross Domestic Product (GDP) -Measures the goods and services produced in the country GDP = Consumer Spending + Gov. Spending + Investments + Net Exports (Exports – Imports) Unemployment Rate -% of people who want a job but can’t find one Consumer Price Index -Measures the change in prices (3% average increase each year)