Economic Indicators

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# Economic Indicators - PowerPoint PPT Presentation

Economic Indicators. Ways that Economists Measure the Health of the Economy. Gross Domestic Product (GDP). The dollar value of all final goods and services produced within a countryâ€™s borders in a given year . About \$15 trillion per year in the United States. Nominal GDP.

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### Economic Indicators

Ways that Economists

Measure the Health of the Economy

Gross Domestic Product (GDP)

The dollar value of all final goods and services produced within a country’s borders in a given year.

About \$15 trillion per year in the United States

Nominal GDP

The dollar value of all final goods and services produced within a country’s borders in a given year, but NOT adjusted for inflation

Assumes \$1 in 1900 is same as \$1 in 2000

Real GDP

GDP adjusted for inflation (value of dollar is adjusted to reflect how purchasing power of the dollar has changed over time).

More useful than nominal GDP (because you can compare different time periods)

SITUATION

You want to find out what the GDP was during the Great Depression.

You find a scanned image of the business section of a 1935 newspaper.

It reports the GDP is (was) \$352 billion in 1934.

Is this number Real GDP or Nominal GDP?

Real GDP

1933 \$600 Billion

1945 \$1.6 Trillion

1990 \$5.74 Trillion

1997 \$ 8.1 Trillion

2007 \$13.3 Trillion

2012 \$13.7 Trillion

GDP Growth Rate

Probably the most important statistic derived from GDP, shows how much more or less a country is producing than in previous years or quarters.

The most commonly used measure of how the economy is doing.

Shows what part of the business cycle we are in.

GDP per Capita

Divides GDP by number of people in the country.

Measures the average amount each person PRODUCES in a year.

Roughly shows how productive a nation is.

Good for comparing economies of different countries.

Unemployment Rate

NORMAL RATE:

4-6%

Considered “healthy”

CURRENT RATE:

6.7%

The percentage of the nation’s labor force that is actively looking for work.

Computed by the Bureau of Labor Statistics polls a sample of about 50,000 families. (Which branch?)

Who isn’t counted? A: People who aren’t actively looking for work.

Examples of those NOT counted: college students; people who have given up and aren’t looking

Unemployment Rate

1934 25% September 2008 6.1%

May 2009 9.5% March 2013 7.8%

Consumer Confidence INDEX (CCI)

A measure of consumer attitude toward current economic conditions.

Adjusted monthly on the basis of a survey of about 5,000 households.

The index considers consumer opinion on both current conditions (40% of the index) and future expectations (the other 60%).

Normal consumer confidence: Based on a 100 score (based on 1985 data when the business cycle was not in a peak or a trough)

Last year’s CCI =

71.8

Current CCI =

82.3

Consumer Price Index (CPI)

A measure of inflation

Determined by measuring the price of a standard group of goods meant to represent the typical “market basket” of a typical urban consumer.

Expressed in percentage (what % MORE consumers are paying relative to the last measure)

Computed each month by the Bureau of Labor Statistics (BLS). Which branch?

Consumer Price Index (Inflation)

CURRENT CPI =

2.0% higher than last year

The number of goods and services that can be purchased with a unit of currency.

As prices go up (or wages go down), your purchasing power goes down

Discount Rate

Rate of interest that the Federal Reserve charges to loan money to other banks

Federal Reserve (the “Fed”) = the government bank that controls the supply of money

Affects how cheap or expensive it is to borrow money

Excessively high OR excessively low is BAD

Actions the Fed Can Take

The Fed can’t decide whether the government spends money. That’s the job of Congress, but…

The more money in circulation, the less the money is worth so prices seem higher (inflation). The FED can decrease the money supply to prevent inflation

The lower the interest rates, the more people will borrow. The FED can lower the discount rate to try to stimulate the economy.

Discount Rate

(Affects All Interest Rates)

Poverty Rate

The percentage of people in America who live in households with income below the official poverty line (insufficient income to support a family)

The “Poverty Threshold”

Persons in Family Maximum total family income

1 \$10,400

2 \$14,000

3 \$17,600

4 \$21,200

5 \$24,800

6 \$28,400

SOURCE:  Federal Register, Vol. 73, No. 15, January 23, 2008, pp. 3971–3972.

New Housing Starts

The number of new homes being built at any given time

Dow Jones Industrial Average(DOW)

Ameasurement of how well the stock of 30 large US companies representing various industries is doing.

Income Inequality

The gap between the rich and poor