Unit 5 Measuring Economic Performance GDP, Business Cycle, Inflation, Unemployment
Gross Domestic Product (GDP) Measure of the economy’s output Dollar value of all final goods and services produced in a country in a year.
Real GDP To compare GDP from one year to another, we must remove inflation. GDP – inflation = real GDP Why? Eliminates the false impression that output has gone up when prices go up.Eliminates the false impression that output has gone up when prices go up.
Business Cycle Alternating intervals of growth and decline of the economy in a nation. If GDP increases where would economy be? If GDP decreases where would economy be?
Recession When real GDP decreases for 6 straight months. Most last about one year **Expansion usually lasts longer than a recession **
Economic indicators Statistics that indicate what the economy is doing Unemployment rate GDP Inflation Consumer Price Index Stock market prices, retail sales, housing sales, etc….
Unemployment Rate Percentage of people in the labor force not working but actively looking for jobs. Rises during recessions, drops during expansion
Inflation Increase in level of prices Reduction of purchasing power of the dollar.
Consumer Price Index Measures the price change of 400 common products that consumers commonly use. The change in average prices determines the rate of inflation.
Stock Market Shares of ownership in companies are bought and sold. Prices increase in expanding economy
New Building Permits Includes construction projects (homes, buildings, bridges, etc) Increases during expansion
Inflation and purchasing power Inflation causes the power of the dollar to decrease EX: you buy an apple for $1. if the cost to produce the apple goes up, the price you pay goes up. If it doubles in price, it now costs you twice as much for the same product. IOW, money will buy less than it did before.
Who does inflation hurt? Everyone, but some more than others People with fixed incomes – pension or salary. People with savings accounts since the money in it will buy less than it did before.
Stock Market Stock Indexes – statistical measures that track stock prices over time Dow Jones Industrial Average – tracks 30 representative stocks Standard & Poor’s 500 tracks 500 large stocks
Stock Exchanges Shares of public companies are bought and sold New York Stock Exchange – “Wall Street”
Government tools to affect the economy Fiscal policy – changes in government spending or tax policies. Cut taxes, increase spendingCut taxes, increase spending Monetary policy – controlling the supply of money and cost of borrowing money. Discount rates, reserve requirements, open market operationsDiscount rates, reserve requirements, open market operations
Poverty Poverty line – single person living on less than $9,800 a year That’s $27 a day for close to 37 million peopleThat’s $27 a day for close to 37 million people
Welfare Programs Welfare programs are designed to combat poverty in the United States. Food Stamps – alleviates hunger and malnutrition by allowing low-income households to to obtain more healthful diet.
Welfare Programs (WIC) Women Infants and Children – provides health with nutrition and health care to low-income women, infants, and children up to age 5. (SSI) Supplemental Security Income – gives payments to blind or disabled people and persons age 65 and older.