Economics: Today and Tomorrow © 2008

Chapter 13: Measuring the Economy's Performance

Chapter Overviews

Section 1: National Income Accounting
Business people, economists, and politicians often need to know how the economy is performing. They use a method called gross domestic product, which is an estimate of the total dollar value of all final goods and services produced annually within a country. The way the national economy's performance is measured is by using national income accounting. This area of economics deals with the overall economy's output, or production, and its income. Five major statistics measure the national economy, which are gross domestic product (GDP), net domestic product (NDP), national income, personal income, and disposable personal income.

Section 2: Correcting Statistics for Inflation
The rise in prices over time is called inflation. Inflation has an effect on purchasing power, and consumer and producer price indexes and real GDP are used to measure changes in average prices.

Section 3: Aggregate Demand and Supply
Aggregates are defined as the summing up of all the individual parts in the economy. Aggregate demand can be defined as the total of all planned expenditures in the entire economy. The reverse is true as the price level falls, which is called aggregate supply. Aggregate demand and aggregate supply curves plot the price level versus total output.

Section 4: Business Fluctuations
The ups and downs in an economy are called business fluctuations. Business cycles are characterized by periods of expansion and contraction in economic activity. The American economy has circulated through this cycle, and its lowest point was the depression period.