Measuring
Economic
Performance
Unit 6
A shift to Macroeconomics
1
Standard 5: National Economic Performance
Students will understand the means by which economic performance is measured.
E.5.1
Define aggregate supply and demand, Gross Domestic Product (GDP), economic growth,
unemployment and inflation.
E.5.2
Explain how GDP, economic growth, unemployment and inflation are measured.
E.5.3
Explain the limitations of using GDEP to measure economic welfare.
E.5.4
Explain the four phases of the business cycle (Contraction, trough, expansion, and peak)
E.5.5
Analyze the impact of events in the United Sates history, such as wars and technological developments
on business cycles. (History)
E.5.6
Identify the different causes of inflation and explain who gains and who loses because of inflation.
E.5.7
Analyze the impact of inflation on students’ economic decisions.
E.5.8
Illustrate and explain cost-push and demand-pull inflation.
E.5.9
Recognize that a country’s overall level of income, employment and prices are determined by
the individual spending and production decisions of households firms and government.
(Government; Individuals, Society, and Culture)
E.5.10 Illustrate and explain how the relationship between aggregate supply and aggregate demand is and
important determinant of levels of unemployment and inflation in an economy.
E.5.11 Compare and contrast solutions for reducing unemployment. (Government)
Standard 8: Trade
Students will understand why individuals, businesses and governments trade goods and services and how trade affects the economies of the world.
E.8.1
E.8.2
E.8.3
E.8.4
E.8.7
E.8.9
Explain the benefits of trade among individuals, regions, and countries (Geography)
Define and distinguish between absolute and comparative advantage.
Define trade barriers, such as quotas and tariffs. (Government)
Explain why countries erect barriers to trade (Government)
Explain how most trade occurs because of comparative advantage in the production of a particular good
or service.
Evaluate the argument for and against free trade.
E.7.3
Describe the negative impacts of unemployment and unexpected inflation on an economy and how individuals and
organizations try to protect themselves. (Individuals, Society and Culture)
E 2.7
Describe how the earnings of workers are determined by the market value of the product produced and
workers’ productivity.
E 2.11 Illustrate how investment in factories; machinery; new technology; and the health, education and
training of people increase productivity and raises future standards of living. (Individuals, Society and
Culture)
E 3.3
Recognize that economic institutions, such as labor unions, nonprofit organizations and cooperatives,
evolve in market economics to help member and clients accomplish their goals. (Government;
Individuals, Society and Culture)
2
Calculating Economic Success – Lesson 1
Objective: To be able explain how economists evaluate the overall health of the
economy using key indicators such as GDP, NDP, NI, PI and DPI.
Preparing for Discussion – There is a lot to know! -Read Pages 336-340 and answer the following questions. There will be a quiz!
1. Review: Why do we need to determine economic health?
2. Define: National Income Accounting –
3. Fill in the chart below or make flash cards.
MEASUREMENTS OF THE ECONOMY
Gross Domestic
Product (GDP)
Net Domestic
Product (NDP)
National Income
(NI)
Personal Income
(PI)
Disposable Personal
Income (DPI)
3. How do economists avoid double counting when calculating GDP?
4. What 4 categories are used to determine the GDP? (Top of page 338)
5. What happens when imports exceed exports?
3
6. What are the 5 components of national income (NI)?
7. What is the point of using 5 different statistics?
8. Why is value important?
9. What are the major differences between GDP and NDP?
10. A. What is depreciation?
B. Which indicator accounts for depreciation? ____________________
11. A. What are Transfer payments?
B. Why are they included in determining PI?
Be prepared for a short quiz. You need to understand national income accounting and the differences between the 5
statistics we have discussed! These indicators explain how the experts determine if we are doing well as a
nation. Why people feel they have reason to worry or why they have confidence in our economy.
4
A Moody Economy – Lesson 2
Objective: Given a model, be able to evaluate the parts of the business cycle and explain how
economists use indicators to predict, evaluate, and explain economic performance.
Together in class –Page 352
Our economy is not static. It is always going through ups and downs that we call business fluctuations.
Economists find it important to monitor and measure these fluctuations so that they can determine how well our
economy is performing. These changes are most commonly understood using the ____________________
___________, which represents the irregular changes in the level of output measured by __________
___________. GDP stands for ______________ _____________ ___________ and is simply the ___________
dollar value of all __________ goods and services produced in a nation during a ________ year. This is just one
of several ways to measure economic performance. We add the word real to show that when we calculate the
GDP we are accounting for the prolonged ________ in the general level of prices of these final goods and
services that natural happens over time. To help us understand and study this cycle we use a model. What
causes these changes? How frequently do they occur? Is it normal? Check out the charts on pages 352 and 353.
Let’s evaluate the model
1. How did each event below affect the nation’s economy.
Event
Effect
Stock Market Crash of 1929
WWII
Tech boom
9/11
2. What happens during an economic expansion? How about during a contraction?
3. Why does the economy expand during war times?
Why does this cycle occur?
5
As you can see from our above exploration of the business cycle, fluctuations happen for various reasons, at
different intervals, and at a range of extremes. Over the years, economists have developed several theories to
explain the business cycles. Today they tend to connect the fluctuations to four main causes.
Psychological
Factors
Page -352: You must Read!
Government
Business
Policies
Decisions
External
Factors
Still, business and political leaders rely on more than just these causes to understand economic change. Their
decisions impact and shape our economy. The more information they have, the more equipped they are to make
wise choices. Therefore they also use statistics known as ______________ ___________________ to measure
variables in the economy. These statistics are compiled by the U.S. Department of Commerce.

Leading Indicators -

Coincident Indicators -

Lagging Indicators -
Putting it all together

For you, which are more important when making decisions, information about what might happen, what
is currently happening, or evidence of what has happened?

Look at the list on page 358. Which economic indicators, have you heard people talk about or observed
personally that point to the health of our economy?
6
Inflation: What is it and is it normal? – Lesson 3
Day 1
Objective: To be able to assess inflation, how it is measured, and how it affects consumers.
Preparing for Discussion
1. Read Pages 342-345.
2. What is inflation?
Together in Class
To best understand how our economy is growing, we need to be able to compare the accounting
statistics _____________ for various years. Economists often use the GDP. For example: How does the 2012
GDP compare to the 2000 GDP? In order to do this we have to take into account the reality that prices do not
stay the same due to ______________. What are some things that you have heard your parents are parents talk
about that were “cheaper in their day”.
When inflation occurs the ______________ ______________ of the dollar decreases. Meaning, the
number of real goods and services you are able to buy with each dollar decreases. (The less you can buy with a
dollar the less _________ it has.) For example, if our currency decreases in value it can make imported goods
more expensive. Ultimately inflation will affect your _________ _____ ______________ unless your employer
provides a _________-_____-_____________ to make up this difference. Those living on _________
___________, such as retired individuals, are hurt most by inflation.
Note: The opposite of inflation, ______________, is also possible. This condition occurs when there is a
prolonged _____________ in the general price level of goods and services. But this does not often occur.
But none of this actually tells us why inflation occurs in the first place. The truth is that not all economists
agree. Two competing theories as to the cost of inflation have immerged.
___________ _____________ inflation -- It suggests that prices rise as a result of ______________ business
and consumer _____________. Since the aggregate demand is growing faster than the supply a
_____________ results which will lead to higher prices. Ultimately then unemployment will be reduced
because of the need for additional output. Demand-Pull inflation can happen for several reasons.




If the federal government causes the money supply to ___________ too rapidly.
Increases in ________________ spending.
Increased ______________ investments.
Decrease in ____________ or consumer ______________.
__________ ______________ inflation - This theory is based on production costs and _____________.
Economists who back this idea suggest that when businesses have to pay their employees more, possibly
because of union demands, their _____________ go up. This in turn forces them to __________ their prices.
Demand hasn’t changed. So there may be no need to hire additional workers to increase the supply.
7
If inflation occurs at the same time as low economic activity (high unemployment etc…), stagnation, then a
situation known as ________________ occurs. Some economists link itDay
to cost-push
inflation.
2
Inflation: What is it and is it normal? – Lesson 3
Objective: To be able to assess inflation, how it is measured, and how it affects consumers.
Together in Class -How do we measure inflation?
There are 3 main methods used by the U.S. government to measure inflation.
1. _____________ _____________ ______________
o It accounts for misinterpretations that can occur due to inflation. When we apply the GDP price
deflator to GDP it subtracts the effects of inflation and leaves us with ____________ ________
o (Reminder: The word real tells us we have adjusted for inflation and can now directly compare
the GDP of different years.)
o Real GDP is used to create the graph of the business cycle.
2. _______________ ________________ ______________ (CPI).
o This statistic measures the average price of goods and services purchases by a typical consumer
living in or around a ___________.
o We use a ____________ _________________of over _____________predetermined goods and
services to determine the price. It is typically considered a ________________ indicator. Look
on page 343. What categories of goods and services do we use?
o What is a base year?
o What base year do we currently use?
3. _______________ _____________ ____________ (PPI).
o This is the change in the price that ________________ charge for their goods and services.
o It includes…
o The PPI will typically increase ______________ the CPI so it gives economists a clue to what is
coming.
8
CPI Exploration
Aggregate Supply and Demand – Lesson 4
Objective: To demonstrate how the laws of supply and demand apply to the economy as a
whole.
Preparing for Discussion
1. Define the following:
a. aggregate demand
b. aggregate supply
2. This relates the discussion in chapter 7. Which of the curves has an inverse relationship with price?
Together In-Class – Putting it together
What happens if one changes faster than the other?
Effects
Increase
Decrease
Aggregate demand
Causes
Aggregate Supply
9
Look at page 350. We can put aggregate supply and demand together just like we did before.
Whistle While You Work (in America) – Lesson 5
Objective: To be able to demonstrate an understanding of the civilian labor force and how
workers are categorized in America and wage determined.
Preparing for Discussion - Answer the following questions using pages 308-311.
1. What is the civilian labor force? – IMPORTANT!!!!!!!!!
2. Who is not included in the civilian labor force (pg 308)?
3. What is the difference between blue collar and white collar workers?
4. Explain each type of unemployment in the chart provided..
***Today ____________ collar workers are the largest sector in the labor force***
Job Catagories by Skill Level
Unskilled
Workers
Semiskilled
Workers
Skilled Workers
Professionals
Together in Class
Within the civilian labor force we can then categorize workers either by type of job or by level of skill.
Progression iof the labor market
10
Blue-Collar
Workers
Farmers
Service
Workers
Wage
Based on the above discussion, we can take a closer look at how supply and demand determines the wage
workers received for the efforts. How is the supply and/or the demand different based on the following?
a. Skill  More skill = higher __________
b. Type of Job  More need = higher________
Less desirable = higher________
c. Location  High cost of living = higher________
Desirable location = lower ________
Population = _________________________________________
Even though supply and demand are the main determinants of wage, their influence may be restricted by
legislation and negotiations between unions and management. We will look more at during the next two days.
This definition of the civilian labor force is also used to evaluate ______________ and create almost all
workforce _____________ you hear about in the United States. High unemployment is usually a sign that our
economy is not doing w, while low unemployment is a positive indicator of our economic performance. When
unemployment is very low, around ______%, economists consider the economy to be at _________
_______________.
Type of Unemployment
(442-443) Which types do you hear about most?
Frictional
Seasonal
Cyclical
Structural
11
Minimum Wage Influences
– Lesson 6
Objective: To understand how changes in minimum wage laws affect the economy.
Preparing for Discussion –
1. What is a cost-of-living adjustment?
2. What is the current minimum wage? __________
3. In your opinion, is this the current minimum wage reasonable pay?
4. Opinion! Should the minimum wage be raised? Why or why not?
5. How many states require a living wage?_________________________
6. Does Indiana have a living wage? ____________________________
7. Which state has the highest living wage? _______________________
8. President Obama would like to see the minimum wage raise to what amount? __________
Together In Class

How does supply and demand ultimately have the last say on the issue?
12
Putting it all together
After learning more about the effects of changes to the minimum wage what do you think?
Organizing Labor in America – Lesson 7
Objective: To be able to explain the development in unions in the U.S. and their historical
influence in the labor market.
Preparing for Discussion – Define the following:
Labor Union –
Together in Class – Guest Speaker
13
Our Economy and Trade – Lesson 8
Objective: To assess how countries decide what to trade based on their respective advantages.
Preparing for Discussion – Answer the following questions on a separate sheet up paper.
Read pages 466-469
1. When it comes to net exports, do we want to import more than we export, or export more than we import?
2. How does a country usually determine what to trade?
3. What is American good at producing? Give the top 3 exports. (page 467)
4. What does it mean to have an absolute advantage?
5. What does it meant to have a comparative advantage?
Together in Class
Trade can be good! Remember, we want our net exports to increase the ____________. In the US we
import more than 60% of our TV’s and radios, but we also export more than 40% of our engineering and
scientific instruments. Why do we not just make everything we use in the states?
As we have discussed all semester, resources are ______________. Each country has to choose so they look at
the aggregate supply and aggregate demand. How and what will they produce? What are they better at
producing? If a country is better at something it will make sense for them to _____________. It then comes
down to what we call absolute and comparative advantage.
Absolute advantage vs. Comparative Advantage
Before Specialization
United States
Brazilian
Hours Worked
4
4
4
4
Production and Consumption
5 pounds of salmon
1 pound of coffee
3 pound of salmon
5 pounds of coffee
Limiting and Facilitating Trade
If a nation doesn’t have an absolute or comparative advantage but want to encourage growth in an industry they
may impose taxes called __________.They may also place a___________ limiting the amount of a particular
14
item that can be imported. _____________ may also be used to completely cut off trade in situations where we
disagree with the government.
Trade agreements such as NAFTA, __________ ______________ ___________ ___________
__________________. between _____________, _____________ and ________________. pg 480
CPI Worksheet
All Items
Base Year
Base year value
2009
2010
Percent Change
2009-2010
100
100
Category
----------
Base Year
Value
Food and Beverage:
100
Apparel:
100
Transportation:
100
Education:
100
Food Eggs:
100
Video Discs and other Media
100
2009
2010
% Change
2009-2010
100
100
100
1. Choose one of the categories above. What was the percentage of change? Based on what we have discussed
and what you already know. Why might have caused the average price increase or decreased?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
15
16