Economic Indicators

Why do we care?How is our economy now?Are people working?What if you want to open a new

business?What if you want to launch a new

product?

Economic IndicatorA number or symbol that tells

you about the status of the economy

◦Ex. Temperature is an indicator of the amount of heat

◦Ex. Dollars are an indicator of the value of a product

5 Major Economic Indicators

GDP – Gross Domestic Product◦Gross = everything◦Domestic = within the borders of the

country◦Product=final goods, services, and ideas

produced in the country

GDP=the total value of all final products produced in a country during a specific time period (economic output)

GDP is also the total amount of money that the economy spends to buy final products (goods, services, ideas).

The major spenders are:◦Consumers-food, clothes, cars,

medical care, hair cuts, concert tickets…

◦Business-computers, warehouse, machinery…

◦Government-national defense, food for school lunch programs, police protection, roads…

Consumer purchases make up the largest amount spent.

Because of that, our economy is called a consumer economy.

Consumers (as a group) have power in our economy because of the large amounts of money they spend.

If consumers buy a lot, the economy grows, if they don’t it slows down.

Economic IndicatorsTools used to measure the

economy.◦Gross Domestic Product◦Standard of Living◦Consumer Price Index◦Inflation Rate◦Unemployment Rate

Gross Domestic Product (GDP)Total value of all final products

produced in a country during a specific time period (also called “Economic Output”)◦Estimated GDP for U.S.= roughly $14

trillion

How to Use GPDThe Growth Rate of the Economy

measures the rate of change in an economy and is calculated by using a country’s GDP taken at different points in time *Rate of Change: an indicator that measures how much something changes over time, also called “percent change over time”

Standard of Living (Per Capita GDP)How much the average person in a

country has; measured by per capita GDP◦Per Capita GDP formula

GDP/Total Population= Per Capita GDP

Estimated GDP for U.S. = roughly $45,800

*Per Capita GDP Defined: a nation’s GDP/nations Population; tells you how much GDP there is for each person in the country

Consumer Price Index (CPI)Measures the average change in prices

over time of goods and services purchased by households (not measured in $ amount)◦Current CPI roughly= 207 (From base rate of

100 in 1982-1984)

*Base Rate Defined: time period chosen and set at 100 CPI to measure CPI at future dates*Index Defined: a number that shows change in value, not the actual value itself

Inflation RateRate of change in prices

◦Formula for calculating Inflation Rate:

CPI (time 2) – CPI (time 1)/ CPI (time 1)x100

*Inflation Defined: general rise in prices throughout the economy (aggregate)

207-201.6 / 201.6 x 100 = 2.7% inflation

Levels of inflationLOW

◦1-4%- Good, rates are stableMEDIUM

◦4-9%- Some problems, prices rising higher than wages

SEVERE (Double Digit)◦10% or higher- Problems severe

HYPERINFLATION◦Over 1000%- Rare, destroys

economy… Get out of town!

Unemployment RatePercent of the labor force that does

not have a job but is looking for one◦Unemployment rate formula

(# of unemployed/total civilian force)x100

*Employed Defined: Refers to everyone who is working*Unemployed Defined: Refers to those who do not have a job but want one and are actively looking for one

Purchasing PowerThe amount of goods and

services you can buy with a specific amount of money (i.e. “value of the dollar”).◦Inverse relationship with Inflation

Purchasing Power high when inflation is low

Purchasing Power low with inflation is high

Stock MarketMarketplace where stocks are

bought and sold (stocks representing the right to ownership in a corporation)

Stock Market as an IndicatorCan be used as an indicator of

health of the economy, but be careful!◦Hard to determine what the stock

market indicators are telling you◦Stock market changes rapidly◦May have more of an impact in

changing people’s perception of the economy, which can have an effect on the economy