The unemployment rate goes up during recessionary periods and down when the economy is expanding.Price stability. When the average prices of products either don’t change or change very little, price stabilityoccurs.When overall prices go up, we have inflation; when they go down, we have deflation.The consumer price index (CPI)measures inflation by determining the change in prices of a hypothetical basket of goods bought by a typical household.To get a sense of where the economy is headed in the future, we use statistics called economic indicators.Indicators that, like average length of unemployment, report the status of the economy a few months in the past are lagging economic indicators.
Those, like new claims for unemployment insurance, that predict the status of the economy three to twelve months in the future are leading economic indicators.EXERCISES1.(AACSB) AnalysisCongratulations! You entered a sweepstakes and won a fantastic prize: a trip around the world. There’s only one catch: you have to study the economy of each country (from the list below) that you visit, and identify the current phase of its business cycle. Be sure to explain your responses.oCountry 1.While the landscape is beautiful and the weather is superb, a lot of people seem unhappy. Business is slow, and production has dropped steadily for the past six months. Revenues are down, companies are laying off workers, and there’s less money around to spend.oCountry 2.Here, people are happily busy. Almost everyone has a job and makes a good income. They spend freely, and businesses respond by offering a steady outflow of new products.oCountry 3.Citizens of this country report that, for a while, life had been tough; lots of people were jobless, and money was tight. But things are getting much better. Workers are being called back to their jobs, production is improving, and people are spending again.oCountry 4.This place makes you so depressed that you can’t wait to get back home. People seem defeated, mostly because many have been without jobs for a long time. Lots of businesses have closed down, and those that have managed to stay open are operating at reduced capacity.
2.What are the three main economic goals of most economies, including the economy of the United States? What economic measures do we examine to determine whether orhow well these goals are being met?1.7 Government’s Role in Managing the EconomyLEARNING OBJECTIVE1.Discuss the government’s role in managing the economy.In every country, the government takes steps to help the economy achieve the goals of growth, full employment, and price stability. In the United States, the government influences economic activity through two approaches: monetary policy and fiscal policy. Through monetary policy, the government exerts its power to regulate the money supply and level of interest rates. Through fiscal policy, it uses its power to tax and to spend.