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Economic Indicators

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 Indicator . A number or symbol that tells you about the status of the economy

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Economic Indicators

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  1. Economic Indicators

  2. 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?

  3. Economic Indicator • A 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

  4. 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)

  5. 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…

  6. 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.

  7. Economic Indicators • Tools used to measure the economy. • Gross Domestic Product • Standard of Living • Consumer Price Index • Inflation Rate • Unemployment Rate

  8. 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

  9. How to Use GPD • The 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”

  10. 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

  11. 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

  12. Inflation Rate • Rate 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)

  13. 207-201.6 / 201.6 x 100 = 2.7% inflation

  14. Levels of inflation • LOW • 1-4%- Good, rates are stable • MEDIUM • 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!

  15. Unemployment Rate • Percent 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

  16. Purchasing Power • The 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

  17. Stock Market • Marketplace where stocks are bought and sold (stocks representing the right to ownership in a corporation)

  18. Stock Market as an Indicator • Can 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

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