Economics: Economics: Chapter 13Chapter 13Measuring the Economy’s Measuring the Economy’s PerformancePerformance

Section 1: National Section 1: National Income AccountingIncome Accounting

National income accounting, the area of National income accounting, the area of economics that deals with the overall economics that deals with the overall economy’s income and output.economy’s income and output.

Gross Domestic Product is measured in four Gross Domestic Product is measured in four areas.areas. Consumer goodsConsumer goods Business, or producer, goodsBusiness, or producer, goods Government goodsGovernment goods Net exportsNet exports

Section 1Section 1

Income is also a measure of GDP.Income is also a measure of GDP. 1. Wages earned1. Wages earned 2. Interest received2. Interest received 3. Rents that are earned on houses or 3. Rents that are earned on houses or

businesses.businesses. 4. Profits that businesses make4. Profits that businesses make Personal income is the pay before taxesPersonal income is the pay before taxes Disposable Personal Income is the amount Disposable Personal Income is the amount

after taxesafter taxes

Section 2: Correcting Section 2: Correcting Statistics for inflationStatistics for inflation

Inflation, the prolonged rise in the general price Inflation, the prolonged rise in the general price level of goods and services.level of goods and services.

Deflation, the prolonged decline of general Deflation, the prolonged decline of general price level of goods and servicesprice level of goods and services

Both affect a consumers purchasing powerBoth affect a consumers purchasing power Consumer Price index, measures the change Consumer Price index, measures the change

in price over time with specific goods or in price over time with specific goods or services (Market Basket).services (Market Basket).

Section 2Section 2

Producer Price Index, these are general Producer Price Index, these are general indexes for non-retail products.indexes for non-retail products.

Be able to compute price index from Be able to compute price index from page 337.page 337.

Section 3: Aggregate Section 3: Aggregate Supply and DemandSupply and Demand

Aggregates, the summation of all parts of Aggregates, the summation of all parts of the economy.the economy.

Aggregate Demand, Quantity demanded Aggregate Demand, Quantity demanded of all goods and services and the of all goods and services and the average of all prices.average of all prices.

That relationship is plotted on the That relationship is plotted on the Aggregate Demand Curve.Aggregate Demand Curve.

Section 3Section 3

Aggregate Supply, if the prices rise Aggregate Supply, if the prices rise overall and wages do not there is more overall and wages do not there is more profit to be made. Supply will increase profit to be made. Supply will increase overall.overall.

Aggregate Supply Curve, How the Aggregate Supply Curve, How the relationship between price and output relationship between price and output can be plotted.can be plotted.

Section 4: Business Section 4: Business FluctuationsFluctuations

The ups and downs of the economy.The ups and downs of the economy. These are not regular cycles because of These are not regular cycles because of

all the factors involved.all the factors involved. Peak or boom, a period of prosperity.Peak or boom, a period of prosperity. Contraction, a downturn in the economy.Contraction, a downturn in the economy. Recession, two quarters of no GDP Recession, two quarters of no GDP

growth.growth.

Section 4Section 4

Depression, millions out of work and Depression, millions out of work and businesses fail.businesses fail.

Trough, lowest point in the business Trough, lowest point in the business cycle.cycle.

Expansion or recovery follows.Expansion or recovery follows. 1930’s, the Great Depression.1930’s, the Great Depression. 80’s were a down market followed by the 80’s were a down market followed by the

prosperous 90’s.prosperous 90’s.

Section 5: Causes and Section 5: Causes and Indicators of Business Indicators of Business FluctuationsFluctuations

1. Business investment, innovations can 1. Business investment, innovations can lead to short term increases.lead to short term increases.

2. Government activity, taxing and 2. Government activity, taxing and spending.spending.

3. External factors, wars, drought.3. External factors, wars, drought. 4. Psychological Factors, prospects of 4. Psychological Factors, prospects of

peace can be positive.peace can be positive.

Section 5Section 5

Economic indicators, their activity seems Economic indicators, their activity seems to lead to change in overall business to lead to change in overall business activity. Positive or negative.activity. Positive or negative.

Lagging indicators, how long will a Lagging indicators, how long will a business cycle last.business cycle last.