Measuring Economic Activity
GROSS DOMESTIC PRODUCT (GDP)
Economic growth refers to a steady increase in the production of goods and services in an economic system. Just as you use different ways to measure your own growth, different methods can be used to measure the growth of an economy.
One way to find out how well an economy is doing is to compare output from year to year. Governments collect information from producers and estimate national output. The most widely used measure is gross domestic product. Gross domestic product or GDP is the total value of all final goods and services produced in a country during one year.
Components of GDP Gross domestic product includes four major categories of economic activity:
1. Consumer spending for food, clothing, housing, and other aspects
2. Business spending for buildings, equipment, and inventory items
3. Government spending to pay employees and to buy supplies and other goods and services
4. The exports of a country less the imports into the country
Some goods and services are not included. For example, GDP does not include the value of the work you do for yourself, such as cutting your own lawn or building a picnic table. If you buy the lawn service or the picnic table from a business, they would be included.
Only final goods, such as cars, are counted when you measure GDP. Intermediate goods used in manufacturing, such as steel and fabrics, are not included. If intermediate goods were counted, the value of these intermediate goods would be counted twice.
If the GDP increases from year to year, this usually signals that an economy is growing and is healthy.
Comparing GDP
The more goods and services that are produced, the healthier an economy is considered to be. Just referring to the total monetary value of GDP as a measure of economic growth does not tell the whole story.
Another way to measure economic-growth is GDP per capita or output per person. GDP per capita is calculated by dividing GDP by the total population (see Figures 2-1 and 2-2). For example, suppose that there is no change in GDP this year compared to last year. Suppose, also, that the population increases. The same output would have to be divided among more people.
An increase in GDP per capita means that an economy is growing. A decrease may mean that an economy is facing difficulties.
Economic growth refers to a steady increase in the production of goods and services in an economic system. Just as you use different ways to measure your own growth, different methods can be used to measure the growth of an economy.
One way to find out how well an economy is doing is to compare output from year to year. Governments collect information from producers and estimate national output. The most widely used measure is gross domestic product. Gross domestic product or GDP is the total value of all final goods and services produced in a country during one year.
Components of GDP Gross domestic product includes four major categories of economic activity:
1. Consumer spending for food, clothing, housing, and other aspects
2. Business spending for buildings, equipment, and inventory items
3. Government spending to pay employees and to buy supplies and other goods and services
4. The exports of a country less the imports into the country
Some goods and services are not included. For example, GDP does not include the value of the work you do for yourself, such as cutting your own lawn or building a picnic table. If you buy the lawn service or the picnic table from a business, they would be included.
Only final goods, such as cars, are counted when you measure GDP. Intermediate goods used in manufacturing, such as steel and fabrics, are not included. If intermediate goods were counted, the value of these intermediate goods would be counted twice.
If the GDP increases from year to year, this usually signals that an economy is growing and is healthy.
Comparing GDP
The more goods and services that are produced, the healthier an economy is considered to be. Just referring to the total monetary value of GDP as a measure of economic growth does not tell the whole story.
Another way to measure economic-growth is GDP per capita or output per person. GDP per capita is calculated by dividing GDP by the total population (see Figures 2-1 and 2-2). For example, suppose that there is no change in GDP this year compared to last year. Suppose, also, that the population increases. The same output would have to be divided among more people.
An increase in GDP per capita means that an economy is growing. A decrease may mean that an economy is facing difficulties.
LABOR ACTIVITIES
The workers of a country contribute to the economy in several ways. First, their labor activities create needed goods and services. In addition, the wages they receive are spent to create demand for various items.
Employment
Today, more than 155 million people work in the United States. These members of the labor force are employed in thousands of different jobs. They produce thousands of different products and services. The labor force consists of all people above age 16 who are actively working or seeking work. Students, retired people, and others who cannot or do not wish to work are not part of the labor force.
One economic statistic of concern is the unemployment rate . The unemployment rate is the portion of people in the labor force who are not working. People are considered to be “unemployed” if they are looking for work and willing to work but unable to find a job.
Unemployment rates vary from year to year and in different areas of the country. The main cause of unemployment is reduced demand for the goods and services being provided by various workers. If fewer people travel by bus, for example, bus companies will need fewer workers.
The workers of a country contribute to the economy in several ways. First, their labor activities create needed goods and services. In addition, the wages they receive are spent to create demand for various items.
Employment
Today, more than 155 million people work in the United States. These members of the labor force are employed in thousands of different jobs. They produce thousands of different products and services. The labor force consists of all people above age 16 who are actively working or seeking work. Students, retired people, and others who cannot or do not wish to work are not part of the labor force.
One economic statistic of concern is the unemployment rate . The unemployment rate is the portion of people in the labor force who are not working. People are considered to be “unemployed” if they are looking for work and willing to work but unable to find a job.
Unemployment rates vary from year to year and in different areas of the country. The main cause of unemployment is reduced demand for the goods and services being provided by various workers. If fewer people travel by bus, for example, bus companies will need fewer workers.
Productivity
A vital source of economic growth is an increase in output per worker. Productivity is the production output in relation to a unit of input, such as a worker. Improvements in capital resources (equipment and technology), worker training, and management techniques can result in more output per worker.
Over time, the rate of growth in labor productivity has ups and downs. While increases in productivity occur in many years, the amount of the increase often becomes smaller. Sometimes, productivity may actually decrease.
If wages increase faster than gains in productivity, the cost of producing goods increases and prices rise. Even though workers earn more money, they are not able to improve their standard of living because of rising prices. For that reason, strong attention has been focused on ways of motivating workers to increase productivity. By doing so, workers will be contributing to a higher standard of living in the nation while also improving their own life situation.
An ability to produce more goods and services makes it possible to reduce the number of hours in a workweek. In the 1890s, the average worker in the United States put in about 60 hours a week. Today, the average work-week for many factory and union-contracted jobs has decreased to less than 40 hours. At the same time, some people have decided to take positions that require working more than 40 hours a week.
In many industries, even though U.S. employees work fewer hours, more is produced and earned than ever before. More can be produced in less time because of technology and efficient work methods. The training and skill of workers also contribute to improved productivity.
CONSUMER SPENDING
The money you earn and spend is one of the most important factors for economic growth.
Personal Income
Each day, people receive money from their participation in production. Personal income refers to salaries and wages as well as investment income and government payments to individuals.
These funds provide the foundation for buying needed goods and services.
Retail Sales
On a monthly basis, the U.S. Department of Commerce measures retail sales , or the sales of durable and nondurable goods bought by consumers. These retail sales are an indicator of general consumer spending patterns in the economy. Increasing retail sales usually points toward economic growth.
The main items whose sales are measured for estimating retail sales include automobiles, building materials, furniture, gasoline, and clothing, as well as purchases from restaurants, department stores, food stores, and drug stores.
A vital source of economic growth is an increase in output per worker. Productivity is the production output in relation to a unit of input, such as a worker. Improvements in capital resources (equipment and technology), worker training, and management techniques can result in more output per worker.
Over time, the rate of growth in labor productivity has ups and downs. While increases in productivity occur in many years, the amount of the increase often becomes smaller. Sometimes, productivity may actually decrease.
If wages increase faster than gains in productivity, the cost of producing goods increases and prices rise. Even though workers earn more money, they are not able to improve their standard of living because of rising prices. For that reason, strong attention has been focused on ways of motivating workers to increase productivity. By doing so, workers will be contributing to a higher standard of living in the nation while also improving their own life situation.
An ability to produce more goods and services makes it possible to reduce the number of hours in a workweek. In the 1890s, the average worker in the United States put in about 60 hours a week. Today, the average work-week for many factory and union-contracted jobs has decreased to less than 40 hours. At the same time, some people have decided to take positions that require working more than 40 hours a week.
In many industries, even though U.S. employees work fewer hours, more is produced and earned than ever before. More can be produced in less time because of technology and efficient work methods. The training and skill of workers also contribute to improved productivity.
CONSUMER SPENDING
The money you earn and spend is one of the most important factors for economic growth.
Personal Income
Each day, people receive money from their participation in production. Personal income refers to salaries and wages as well as investment income and government payments to individuals.
These funds provide the foundation for buying needed goods and services.
Retail Sales
On a monthly basis, the U.S. Department of Commerce measures retail sales , or the sales of durable and nondurable goods bought by consumers. These retail sales are an indicator of general consumer spending patterns in the economy. Increasing retail sales usually points toward economic growth.
The main items whose sales are measured for estimating retail sales include automobiles, building materials, furniture, gasoline, and clothing, as well as purchases from restaurants, department stores, food stores, and drug stores.