economic activity there is in specific parts of the economy.
There are additional indicators that show how fast the economy is growing (or shrinking) in particular areas. There are also dozens of other government statistics that measure economic activity, all of which tell us how well businesses and consumers are doing.
Additional growth indicators include
• Corporate profits.
• Farm income.
• Industrial production.
• New housing construction.
• Personal income.
• Retail sales.
Growth is important for an economy.
Help Wanted
GDP and other growth indicators measure the amount of activity taking place in an economy. Another way to measure activity is to look at inactivity.
One important measure of inactivity is the unemployment rate. This indicator tells us the percentage of workers who are out of work. This is a good way to measure the health of an economy. When only 5 percent of people are out of work, the economy is much healthier than when the unemployment rate is 10 percent.
As with GDP, comparisons across time provide a more useful perspective. If the unemployment rate is declining, that means more people are working. The economy is getting stronger. If the unemployment rate is rising, then the opposite is true.
Did You Know?
A country’s unemployment rate might actually be higher than what is officially listed. This is because many people who are out of work do not report this fact to the government, so they do not get recorded as part of the total percentage of unemployed citizens.
When a lot of people are out of work, the economy is not healthy.
The Rising Cost of Living
People from an older generation remember when a penny or a nickel was worth much more than today. There is a reason your grandparents could buy candy for a penny, while you have to spend close to a dollar. It is called inflation.
Inflation is a feature of economic systems that demonstrates that as time passes, things get more expensive. This might seem unfair if incomes always stayed the same. But usually incomes go up as prices rise. This helps offset increases in the cost of living.
Still, not every good or service increases in price over time. In fact, some prices actually decrease over the years. When a technology is very new, it is often quite expensive. As technology advances and new ways are discovered to produce something more efficiently, the price of an item might actually decrease. Examples of items that have decreased in price after first being introduced are radios, televisions, and personal computers.
The average price for a gallon of gas rose during a relatively short period of time. Think about possible reasons why the price continues to rise today.
The Increasing Price of Gas
1977: $0.55
1980: $1.00
1990: $1.25
2000: $1.55
2006: $3.00
2014: $3.56
The Inflation Rate
The U.S. government measures inflation with something called the Consumer Price Index, or CPI. The CPI is the average price of a group of goods and services such as food, transportation, and medical care. As the CPI rises, economists can get an overall picture of how fast prices are rising. This lets them determine what the inflation rate is.
The inflation rate is an important economic indicator. It lets people know how fast they should expect prices to rise.
The inflation rate can also be used to adjust for the effects of inflation. Doing this shows how much something in the past would cost today. For example, by calculating the inflation-adjusted price, you would find out that something you paid $5 for in 1990 would cost $8.90 in 2013.
It is easy to see the effect of inflation – did you ever see gas selling so cheaply?
What Your Money Can Buy
Prices are always going up, but not all prices rise at the same rate. Some prices go up faster than the inflation rate, while others go up more slowly.
If the actual price and the inflation-adjusted price are about the same, then the price has not really gone up, even though the number on the price tag is bigger.
For example, when gas went from 55 cents per gallon in 1977 to $1.55 in 2000, that was about equal to the inflation rate. So, gas cost about the same. But inflation would have made that $1.55 in 2000 into only $1.82 by 2006. When gas went up to $3, it rose faster than inflation.
Often, when prices go up faster than the inflation rate, it is a result of high demand. For instance, football is a more popular sport today than it was in 1975. So prices for tickets to the Super Bowl have increased more than three times as fast as the inflation rate. Other areas where prices have outpaced inflation include medical care and college education.
If prices rise at 4% and your income does the same, you are not harmed in the short run. But you might be harmed in the long run as you try to save for college or retirement if your savings cannot keep up with rising costs over a long period of time.
As time goes by, a dollar buys less and less.
Knowledge Is Power
Decision making is an important part of the game of economics. Making good decisions requires knowledge, skill, and information.
The indicators give economists and others a fairly good picture of how the economy is doing.
Economic indicators have an influence on the decision-making process. For instance, the inflation rate is useful for making smart decisions. Imagine that you want to buy an expensive new TV. If the inflation rate is high, it might make sense to buy the TV now before it gets much more expensive. On the other hand, it might make more sense to save the money because your rent and food bills are going to go up, too. Economic indicators are like signposts guiding you along an economic path. If read correctly, they can help an economic player arrive at safely at a destination.
People who try to make money in the stock market use all kinds of information to make predictions.
Doctoring the Economy
Economists are like doctors who try to determine the health of the economy. They use different measures, such as gross domestic product, growth rates, the unemployment
