Chapter 13 Measuring the Economy’s Performance
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Chapter 13 Measuring the Economy’s Performance
Why do we need to know how the economy is doing ?- To ensure a healthy economy and high standard of living- To make adjustments as needed
What do we measure?- The goods and services produced- Income people have to spend
The Big 5 Statistical Measures
GDP = consumption + investment + government spending + (exports − imports)
GDP – Total value of Goods and Services produced annually.
13.3 Trillion
World = 60.6TUSA = 13.3TEuropean Union = 13.0T
GDP Comparisons
Country Population GDP (Billions) Per Capita GDP
China (Mainland) 1,296,200,000 $ 2,225 $ 1,716
China (Hong Kong) 6,900,000 $ 178 $ 25,757
France 60,400,000 $ 2,106 $ 34,865
Germany 82,500,000 $ 2,797 $ 33,907
United States 293,700,000 $ 12,486 $ 42,512
GDP Comparisons
Problems with Using GDP
1. Economist must make calculations
2. Problem of double countingComponents vs. Finished Products
Memory chips – NoComputers – Yes
3. Used products can’t be counted in GDPSale of a used carPurchase of a used appliance
4. Sale of goods and services that go unreportedTipsBlack market goods
Disposable Personal Income (DI)
Income remaining after taxes are paid
Factoring for Inflation
Inflation – Prolonged rise in cost of goods and services. Deflation – Prolonged decrease in cost of goods and services.
Purchasing Power – Amount of goods and services your money will buy.
Consumer Price Index (CPI)Price changes in a basket of goods. 90,000+ itemsItems changed every 10 years. Base year 1982-1985
1.57 - $1.50 = .075.075/150 = 5%
Producer Price Index (PPI) Changes in price producers charge to consumers.Mining, Manufacturing and AgricultureEarly indicator of Consumer inflation
GDP Price Deflator Removes effects of inflation from GDP = Real GDP1996 is base year.
$9,963.1 / 106.92 x 100 = $9,318.3
Business Fluctuations
Boom – Prosperity New businesses open Current factories producing at full capacity Jobs easy to secure
Contraction – Slowing of EconomyFlat or declining growth
Recession – At least two quarters of no growth
Depression – Prolonged recessionMillions out of workNumerous business failures
The Business Cycle
US Business Cycle History
25% Unemployment
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