LESSON 3:

Measuring Economic Activity

1. Gross Domestic Product (GDP) Total value of goods and services produced in a country in a given year.

Economists compute GDP through: a. b. c. d. Consumer goods and services Business goods and services Government goods and services Goods and services sold to other countries Standard of Living the amount of goods and services the average citizen can buy

2. Unemployment Rate
Measures the number of people who are able to work but dont have a job during a given period of time Causes of Unemployment: a. Fresh graduates (from universities) and those who quit their jobs and are looking for work

This type of unemployment is temporary and has little effect on the economy

b. Seasonal People who work in the fields to harvest crops or work in retail during holiday season may only work during a certain part of the year. c. Industrial Change

New technologies can replace workers Companies merge, restructure and downsize, laying off thousands of workers
d. Entire Economy slows down (worst cause of unemployment and last a long time, until the whole economy recovers.

3. Rate of Inflation Inflation a general increase in the cost of goods and services. It happens when an economy actually becomes too productive. (the more people are employed, the more people spend) Deflation a general decrease in the cost of goods and services. It happens when an economy produces more goods than people want

4. National Debt the main source of government income is taxes, and is used to pay social programs like defense, education and social security.
Budget deficit the difference in the amount of government income when the government spends more than the taxes it collected National debt the total amount of money the government borrowed from the public, banks and other countries Budget surplus governments revenue exceeds its expenditures during a year period

The Business Cycle

the repeated rise and fall of economic activity over time

Phases of the Business Cycle

1. Prosperity (Peak) is characterized by: Low unemployment Production is high New businesses open

2. Recession - is characterized by:

Spending decreases Demand increases Unemployment rate increases

3. Depression (Trough) is characterized by:

High unemployment Low productivity

4. Recovery - is characterized by: Production starts to increase People go back to work Spending increases