3. Indicators Measure Economic Performance
A nation’s overall levels of income, employment, and
prices are determined by the interaction of spending and
production decisions made by households, firms,
government agencies, foreign markets, and others in the
economy.
Economic goals include :
full employment, which is measured by the
unemployment rate
stable prices, measured by indices such as the
Consumer Price Index
economic growth, measured by real gross
domestic product (GDP).
5. GDP
Gross domestic product (GDP) is a basic measure of
a nation’s economic output and income. It is the total
market value of all final goods and services produced
in the economy in one year.
7. Real GDP
Nominal GDP is measured in current dollars; thus an
increase in GDP may reflect not only increases in the
production of goods and services, but also increases
in prices.
GDP adjusted for price changes is called real
GDP.
Economic growth is measured by real gross domestic
product.
9. GDP per capita
Real GDP per capita is a measure that permits
comparison of material living standards over
time and among people in different nations.
It is calculated by dividing real GDP by the
population.
The potential GDP for a nation is determined by the
quantity and quality of its natural resources, the size
and skills of its labor force, and the size and quality
of its capital resources.
10. What is the most commonly used
measure of price-level changes?
11. Measure of Price Changes
The consumer price index (CPI) is the most
commonly used measure of price-level changes.
It can be used to compare the price level in one
year with price levels in earlier or later periods.
13. Measure of Unemployment
The unemployment rate indicates the level of
unemployment in the country.
The unemployment rate is the percentage of the
labor force (not population) who are not
working and are actively seeking paid work.
The labor force includes persons over age 16 who are
working for pay or actively seeking paid work.
15. Measures are Imperfect Because:
Consumer Price Index is an imperfect measure
because the market basket of goods included cannot
reflect everyone’s spending, and it does not
take into account improvements in those
products.
The unemployment rate is an imperfect measure
because it does not (1) include workers whose
job prospects are so poor that they are discouraged
from seeking jobs or (2) reflect under-
employed people such as part-time workers who
are looking for full-time work.
