Macroeconomics Chapter 4

Macroeconomics Chapter 4 - Chapter 4 Three Main Indicators...

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Chapter 4 Three Main Indicators of Macroeconomic Activity Output, price and employment are the three main indicators of macroeconomic activity and performance. Output is a measure of the total quantity of goods and services produced by the economy. It is also a measure of the incomes generated by their production. Price or Price level is the weighted average of the market prices of all final goods and services produced. Price level reflects the costs of production in the economy. Employment is a measure of the number of jobs involved in the production of goods and services. Real gross domestic product (Real GDP) measures output and income. It is the quantity of final goods and service produced in a specific time period measured in the market prices of a base year. The production of goods and services generates income equal to the value of those goods and services. The real GDP changes from year to year. The changes we see are the result of changes in the quantities of goods and services not the result of changes in price. Economic growth is an increase in the real GDP. The rate of growth in the real GDP is the annual percentage change in the real GDP. Rate of growth of R.GDP = [(R. GDP new – R. GDP old) / R. GDP old] x 100 The price level in the economy is a measure of the average prices of all goods and services produced. price index is constructed and used to provide a measure of prices in one year compared with prices in a base year. Consumer Price Index (CPI) , for example, compares the cost of a fixed basket of goods and services bought by the typical household at a specific time with the cost of that same basket of goods and services in the base year. Cost of living. Inflation is defined as a persistent rise in the general price level as indicated by these increases in the price index over time. The inflation rate is the annual rate of change, as a percentage, in the price level. Inflation rate = ( CPI new – CPI old ) / CPI old x 100
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Labor force excludes full-time members of the armed forces, those persons living on Indian reserves, and those in institutions such as penal institutions, hospitals, and nursing homes. Labor force is those adults employed plus not who are not employed but are actively looking for work. Employment is defined as the number of adults (15 years of age and older) employed full-time and part-time and self-employed. Unemployment covers those not working but available for and seeking work. The participation rate is the proportion of the surveyed population that is either working or unemployed. The rate changes as people become more optimistic about finding employment . Participation Rate = (Labour Force / Population ) x 100 The unemployment rate is the percentage of the total labour force that is not employed but is actively looking for employment. Unemployment rate will rise if more people start looking for work. Unemployment rate = (Labor Force – Employed) / Labor Force x 100
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This note was uploaded on 04/11/2011 for the course ECON 203 taught by Professor Islam during the Spring '08 term at Concordia Canada.

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Macroeconomics Chapter 4 - Chapter 4 Three Main Indicators...

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