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Economics_Ch11 - 11(286-309 EMC Chap 11 6:05 PM Page 286...

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Why It Matters I f you go to the doctor for a checkup, she will take your vital signs—your temperature, your blood pressure, and your pulse rate. When it comes to the economy, economists do much the same. This chapter discusses many of the measure- ments that economists make to determine the health of the economy. First, economists want to measure the total output of the economy. They want to measure the total mar- ket value of all the goods and services produced annu- ally in the United States. Think of it in this way: each year, people in the United States produce goods and services—cars, houses, com- puters, attorney services, and so on. Economists want to know the total dollar value of all these goods and services. Another vital sign that economists want to monitor is prices. Are prices in the economy rising? If so, how fast are they rising? Are they rising by 1 percent, 3 per- cent, or 5 percent? Are prices falling? If so, how fast are they falling? As you read this chapter, think of the economy as a patient in a doctor’s office. Instead of the doctor check- ing out the economy, an economist will take the econ- omy’s “pulse,” “height and weight,” and other vital signs. In later chapters you will learn more about the remedies economists prescribe for an unhealthy economy. 286 This relatively small trans- action is but one of mil- lions that economists account for each year to measure the economy’s activity.
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The following events occurred one day in June. 1:13 P.M. Jones, the plumber, is just finishing up the job at Kevin’s apartment. Kevin asks Jones how much he owes him. Jones says, “$210.” “Okay,” says Kevin as he takes out his check- book. “Oh, and by the way,” Jones adds, “could you pay me in cash?” Why does Jones want to be paid in cash? 1:34 P.M. The economics professor is telling her class that China has one of the highest gross domestic products of any country in the world. A student remarks, “But I thought China was a poor country. How can a poor country have a high gross domestic product?” How can a country have a high GDP and be poor too? 2:34 P.M. Beverlee Smith picks up the phone to call her parents, both of whom are retired. When her father answers the phone, Beverlee blurts out, “I got the job. And I got the salary I asked for—$60,000.” Her father replies, “That’s a great salary—you’re rich. After all, your mother and I lived comfortably on my first salary of $8,000.” What mistake is Beverlee’s father making in comparing his first salary (years ago) with her salary today? 8:00 P.M. Jimmy and Ellie are in their seats in the dark movie theater as the trailers play. They’re waiting for the start of the movie. Ads for the movie have been running on television for weeks. Jimmy turns to Ellie and whispers, “I heard that this movie might be the biggest box office hit of all time—even bigger than Titanic .” What’s the best way to compare the gross receipts of two movies?
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