Chapter Overviews

Chapter 13: Measuring the Economy's Performance

Chapter Overviews

Section 1: National Income Accounting
The way we usually measure the national economy’s performance is by using national income accounting. Five major statistics can measure the national economy: gross domestic product, net domestic product, national income, personal income, and disposable personal income. The most common statistic used is the gross domestic product (GDP), which is an estimate of the total dollar value of all the final goods and services produced annually within a country.

Section 2: Correcting Statistics for Inflation
The rise in prices over time is called inflation. As inflation rises, the purchasing power of the dollar goes down, which means that a dollar buys less than it used to. GDP must be adjusted for inflation to compare price levels from year to year. Inflation can be measured in several ways: consumer price index (CPI), producer price index (PPI), and GDP price deflator.

Section 3: Aggregate Demand and Supply
Aggregate demand is all expenditures in the economy. Aggregate supply is all the output within a country. The price level of the overall economy is determined by the interaction of aggregate demand and aggregate supply. Aggregate demand and supply curves graphically show the relationship between the price level and 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 Great Depression of the 1930s.

Section 5: Causes and Indicators of Business Fluctuations
Business cycles can be caused by changes in business investment, government policies, and the availability of key commodities, or by psychological factors. Economic indicators are statistics that measure variables in the economy. There are three types of economic indicators: leading, coincident, and lagging.