National Health :

Using Indicators to Measure Economic Performance

Economic Goals
Growth:
Increasing production of goods/services

High Employment: Resources are

being used in production

Price Stability (low inflation):

Prices arent rising/decreasing rapidly

Business Cycles

reoccurring periods of expansion/contraction (recession) in economic activity Typically 2.5 years Ranges from 1-10 years from peak to trough

Economic Indicators Measure Goals & Cycles

show economic performance e.g.

Leading Indicators
Change before general economic activity Predict direction economy is moving e.g.

Money supply

New orders for consumer goods & materials

Contracts for orders for plant & equipment New building permits for private housing units Changes in business inventories Common stock prices Length of the average work week Initial claims for unemployment insurance Change in consumer debt

Coincident Indicators
move at the same time as economic activity

#employees on nonagricultural payrolls Personal income minus transfer payments Manufacturing/trade sales volume Civilian employment to population ratio GDP

Industrial production

Lagging Indicators

trail behind the economy Wont show upturn even if economy is growing e.g.

Consumer debt to personal income ratio

Average duration of unemployment

Manufacturing/trade inventories Commercial loans Short-term interest rates

Unemployment rate
% change in CPI

Indicators & the Economy

Pro-cyclic:

move in same direction of general economic activity

Economy doing well, indicator high/increasing e.g. GDP

Counter-cyclic:

move in opposite direction of general economic activity

Economy doing well, indicator low/decreasing e.g. unemployment rate

Indicators & Economic Goals

Coincident indicators show current economic
performance & identify problem areas

Leading indicators predict the economys future

performance

Economic Growth

increase in value of goods/services produced by an economy

Limited by resources in the economy % increase in real GDP GDP (nominal):

dollar value of all final goods/services produced by resources in
country in certain period of time

tells the money value of goods/services in different years

Real Per Capita Income (GDP/population): measures a countrys standard of living

Economic Growth in Real Terms

Real values adjust for differences in price levels across years

Differences in nominal values could result from changes in

prices

Nominal values dont specify whether change is from inflation

or econ growth

Real values remove ambiguity

convert nominal values as if prices were the same in each year differences in real values reflect differences in the amount of
goods that income could buy in each year

Nominal vs. Real

Nominal: an indicator measured over time with no
adjustment for the dollars changing value (changes in prices)

Real: an indicator adjusted for the dollars changing value

if wages double we think we have lots more $ to spend, but if prices quadruple, we lose the ability to buy goods as they cost more nominal value of wages doubled but the halved real value

To track changes in indicators over time, we must always

use real values

High Employment
High unemployment rates create high opportunity costs
of lost output

Economic growth reduces unemployment (lagging

indicator)

Price Stability (Low Inflation)

Inflation: the general rise in prices over time Rapid price increases erode currency value

people unwilling to hold cash monetary system breaks down as individuals begin bartering (trading goods for goods w/o using cash)

Inflation can erode purchasing power if prices rise by

more than income