Chapter 14Economic Stability

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

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

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

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

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

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

Frictional Temporary A. often referred to as wait unemployment B. actually considered healthy for the

economy C. Example Seasonal unemployment

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

Cyclical Unemployment People lose jobs because of a recession This is the greatest concern to the

government My Unemployment Resource

Employment Full employment occurs when you have

95% of people working Frictionally unemployed are not included

Fiscal Policy Governments use of taxation or spending to

fight inflation and recession Can cut taxes in a recession May raise taxes during inflation

Monetary Policy The Fed Discount Rate Reserve Ratio Open market Operations YouTube - The Goldsmiths Tale