1. How do economists measure a nation’s economic health?
Measuring the Economy
Unit 13
Essential Question:
How do economists measure a nation’s economic health?

2. 3 main goals…measures Economy should grow – GDP
People should have jobs – Unemployment rate
Prices should be stable – Inflation rate

3. How big is the economy?
To measure “how big”…snake (inches/feet), steer (pounds), baseball production (batting average), academic production (GPA), but how to measure an economy?
We use GDP = gross domestic product – value of all goods & services produced in a country during a time period (usually a quarter, or year)
GDP formula…
C + I + G + (X – M) = GDP
C = consumption
I = investments
G = government spending
(X – M) = (eXports – iMports). Also called NX = net exports.

4. What about inflation?
Inflation – yearly rise in prices – makes it hard to compare this year vs. say 50 years ago. Two measures…
Nominal GDP – measures GDP in “current dollars” (today’s prices)
Inflation is NOT pulled out, so comparing to other years is hard.
Real GDP – does NOT use current dollars, but uses “constant dollars”.
This means they use a base year & pull out inflation.
GDP can then be compared from year to year.

5. Notice the base year…2000, Q1.

6. Per capita GDP = GDP ÷ population
What about population?
What if a country has lots of people vs. a country with just a few?
We use per capita GDP. Per capita – per person, so it’s…
Per capita GDP = GDP ÷ population
Left = nominal GDP Right = per capita GDP

7. Unemployment
Unemployment helps measure the economy. Low = good, high = bad
Unemployment rate — % of labor force seeking employment
Employed – people in labor force & have a job
Unemployed – people in labor force who are jobless but looking
Not in labor force – eligible for labor force but not working or not looking (students, retired, disabled, etc.)
Formula: (Unemployed/Labor Force) X 100
Usual unemployment rate is 4 to 6%
Right now, it is states/unemployment-rate

9. 4 types of unemployment Frictional – when you’re “between jobs”
Structural – changes outdate your job or skills (new technology)
Seasonal – some jobs have slow periods
Cyclical – the economy has good times and hard times

10. Inflation Inflation is the rise in prices.
Inflation rate -- % increase in average price of goods/services
To measure this, we use CPI = Consumer Price Index = % change in prices
CPI uses a “market basket”, a group of common items purchased
Last year – a market basket was $200
This year – a market basket was $208
% change formula is (N – O) ÷ O N=new number, O=old number, so…
208 – 200 = 8 8 ÷ 200 = (x100 gives us 4%) Inflation is 4% here.

11. Cont. We also use a “cost of living” index.
Nominal cost of living – cost for basic goods people need in today’s prices
Real cost of living – has inflation taken out, so now we can compare to earlier years
Inflation types
Creeping inflation – a slow steady rise, average is 3.4% per year
Hyperinflation – fast inflation, rare in U.S.
Deflation – drop in prices; good news is things are cheap, bad news is it’s bad for business
What’s the current inflation rate? states/inflation-cpi