In this chapter students will be able to: Define the basic vocabulary of macroeconomics, describe how the economy is measured; describe how gross domestic product, our national measure of output, is calculated; calculate inflation using a price index; describe real gross domestic product as the inflation-adjusted value of economic activity and judge its use as the measure of the economy’s health;. | Chapter 7 Every Macroeconomic Word You Have Ever Heard: Gross Domestic Product, Inflation, Unemployment, Recession and Depression Chapter Outline Measuring the Economy Real Gross Domestic Product and Why it is Not Synonymous with Social Welfare Measuring and Describing Unemployment Business Cycles Microeconomics vs. Macroeconomics Microeconomics: that part of the discipline of economics that deals with individual markets and firms Macroeconomics: that part of the discipline of economics that deals with the economy as a whole Gross Domestic Product Gross Domestic Product: the dollar value of all of the goods and services produced for final sale in the United States in a year “Final Sale” avoids double counting of intermediate production “Sale” implies exclusively market activities “producedin the United States” implies that Hondas produced in the US count but Fords produced in Mexico do not. Measuring Prices Market Basket: what average people buy and in what quantities they buy it . | Chapter 7 Every Macroeconomic Word You Have Ever Heard: Gross Domestic Product, Inflation, Unemployment, Recession and Depression Chapter Outline Measuring the Economy Real Gross Domestic Product and Why it is Not Synonymous with Social Welfare Measuring and Describing Unemployment Business Cycles Microeconomics vs. Macroeconomics Microeconomics: that part of the discipline of economics that deals with individual markets and firms Macroeconomics: that part of the discipline of economics that deals with the economy as a whole Gross Domestic Product Gross Domestic Product: the dollar value of all of the goods and services produced for final sale in the United States in a year “Final Sale” avoids double counting of intermediate production “Sale” implies exclusively market activities “producedin the United States” implies that Hondas produced in the US count but Fords produced in Mexico do not. Measuring Prices Market Basket: what average people buy and in what quantities they buy it Base Year: year in which the market basket is established and year to which all other prices are compared Price of the Market Basket in the Base Year: (PBYMB) national average of the total cost of the market basket for the first month in the first year. Price Index Price Index: a device that centers the price of the market basket around 100 Consumer Price Index: the price index based on what average consumers buy CPI= *100 PBYMB PATMB Where PATMB is the price of the market basket at “any time” and PBYMB is the price of the market basket in the base year Measuring Inflation Inflation Rate: the percentage increase in the consumer price index Inflation rate = *100% CPIEY-CPIBY CPIBY Where CPIEY is the Consumer Price Index at the end of the year and CPIBY is the Consumer Price Index at the beginning of the year. The CPI and Inflation in Selected Year Base Years (1982-1984) Year CPI Inflation Rate 1930 1950 1970 1990 1995 1996 1997 1998
