Chapter Two - ------------------------------------------...

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Unformatted text preview: ------------------------------------------ Chapter TwoObserving and Explaining the Economy------------------------------------------ Economics, an OverviewNow that we know what economics is from Chapter 1, we need to understand the usefulness of economics by understanding the economic way of thinking. Economics entails:1)accurately describing economic events2)explaining why the events occur3)predicting under what circumstances such events might take place in the future4)recommending appropriate courses of actionTo understand the economic way of thinking in more detail, we focus on two observations or questions on healthcare and the US economy.------------------------------------------Health-Care and the EconomyObservation 1: Health-care spending has increased faster than the rest of the U.S. economy since 1990.Question 1: Why did health-care spending increase faster than the rest of the US economy?To understand how we ended up with the observation and answer the question, we need a measure of health care spending and a measure of the overall size of the U.S. economy.------------------------------------------ Health-Care and the Economy (contd)Gross Domestic Product (GDP): a measure of the value of all goods (cars, t rucks, houses, TVs, etc.) and services (education, rock concerts, health-care, etc.) newly produced in an economy during a specified period of time.How large is the US GDP? See Table 2.1 (column (1)) and Figure 2.1.Health-care spending includes payments for hospital services, lab tests, nursing homes, visits to doctors and dentists, prescription and non-prescription drugs, hearing aids, eyeglasses, and more.How much have we been spending on health-care? See column (2) on Table 2.1 One way to assess health-care spending compared to the spending of all goods and services is to look at health spending as a share of GDP, or:From column (3) in Table 2.1, the share of health-care spending to GDP has gradually increased from 9.6 percent in 1990 to 11.9 percent in 2004....
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Chapter Two - ------------------------------------------...

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