1. Chapter 14
Economic Stability

2. Economic Stability- anything that helps to measure & determine the current condition or health of our economy
There are 2 types of instability…
1. Recession- 6 straight months of a negative GDP-the economy
2. Inflation- rapid increases in the general price level. The economy is running too fast

3. Major Indicators
GDP- Gross domestic Product-total market value of all final goods & services produced WITHIN the U.S. in a given year
1. When GDP rises the economy is doing well
2. When GDP falls, less goods & services are being produced

4. Just the facts 1. includes only final goods & services
2. includes only things produced in the U.S.
3. Includes things that may be deemed as harmful
4. Does not account for changes in product quality
5. excludes business done in the black market
6. excludes non-market transactions i.e. a carpenter who builds his own deck
7. inflation can distort the real growth ofGDP

5. GDP There are two ways to calculate GDP
1) The expenditure approach-tabulates the way money is spent in the economy
A) consumer spending
B) Gross investment
C) Government Spending
D) Net Exports
C + Ig + G + Xn = GDP

6. GDP Income approach A) wages & salaries B) profits C) rents
D) interest
E) taxes
F) Depreciation
All of these added = GDP

7. Unemployment
Unemployment is the percentage of those people in the “Labor Force” unable to find jobs.
How do we define the labor force?
1. be at least 16 years old
2. be actively seeking work
3. can’t be institutionalized

8. Frictional Temporary A. often referred to as wait unemployment
B. actually considered healthy for the economy
C. Example Seasonal unemployment

9. Structural Unemployment
people lose their jobs because they are replaced with new technology, or they live in the wrong place
Sometimes thought of as technological or geographic unemployment

10. Cyclical Unemployment
People lose jobs because of a recession
This is the greatest concern to the government
My Unemployment Resource

11. Employment Full employment occurs when you have 95% of people working
Frictionally unemployed are not included

12. Fiscal Policy
Governments use of taxation or spending to fight inflation and recession
Can cut taxes in a recession
May raise taxes during inflation

13. Monetary Policy The Fed Discount Rate Reserve Ratio
Open market Operations
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