32. Economic slowdown measuredby a decline in gross domesticproductivity.33. Severe, long-lasting recession.Chapter 1 The Foundations of Business1.6 Measuring the Health of the Economy37
weaken the economy. Because most people earn their spending money by working,an important goal of all economies is making jobs available to everyone who wantsone. In principle,full employment34occurs when everyone who wants to work hasa job. In practice, we say that we have “full employment” when about 95 percent ofthose wanting to work are employed.The Unemployment RateThe U.S. Department of Labor tracks unemployment and reports theunemployment rate35: the percentage of the labor force that’s unemployed andactively seeking work. The unemployment rate is an important measure ofeconomic health. It goes up during recessionary periods because companies arereluctant to hire workers when demand for goods and services is low. Conversely, itgoes down when the economy is expanding and there is high demand for productsand workers to supply them.Figure 1.10 "The U.S. Unemployment Rate, 1970–2010"traces the U.S.unemployment rate between 1970 and 2010. If you want to know the currentunemployment rate, go to the CNNMoney Web site (CNNMoney.com) and click on“Economy” and then on “Job Growth.”Figure 1.10The U.S. Unemployment Rate, 1970–2010Price StabilityA third major goal of all economies is maintainingprice stability36. Price stabilityoccurs when the average of the prices for goods and services either doesn’t change34. Condition under which about95 percent of those who wantto work are employed.35. Percentage of the total laborforce that’s currentlyunemployed and activelyseeking work.36. Conditions under which theprices for products remainfairly constant.Chapter 1 The Foundations of Business1.6 Measuring the Health of the Economy38
or changes very little. Rising prices are troublesome for both individuals andbusinesses. For individuals, rising prices mean you have to pay more for the thingsyou need. For businesses, rising prices mean higher costs, and, at least in the shortrun, businesses might have trouble passing on higher costs to consumers. When theoverall price level goes up, we haveinflation37.Figure 1.11 "The U.S. Inflation Rate,1960–2010"shows inflationary trends in the U.S. economy since 1960. When theprice level goes down (which rarely happens), we havedeflation38.Figure 1.11The U.S. Inflation Rate, 1960–2010The Consumer Price IndexThe most widely publicized measure of inflation is theconsumer price index(CPI)39, which is reported monthly by the Bureau of Labor Statistics. The CPImeasures the rate of inflation by determining price changes of a hypotheticalbasket of goods, such as food, housing, clothing, medical care, appliances,automobiles, and so forth, bought by a typical household.
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