Measurement of Economic Performance

  • UNIT #3:  Measurement of Economic Performance

    Chapters 22, 23, pages 637-351, and Chapter 26

    Check here for class handouts and lesson plans.

    Measurement of Economic Performance

    To provide an overview of how the economy works, the course should start with a model of the circular flow of income and products that contain the four sectors: households, businesses, government, and international. It is important to identify and examine the key measures of economic performance: gross domestic product, unemployment, and inflation.

    In studying the concept of gross domestic product, it is also important that students learn how gross domestic product is measured, have a clear understanding of its components, and be able to distinguish between real and nominal gross domestic product.

    The course should examine the nature and causes of unemployment, the costs of unemployment, and how the unemployment rate is measured, including the criticisms associated with the measurement of the unemployment rate. It is also important to understand the concept of the natural rate of unemployment and the factors that affect it. Students should also have an understanding of inflation and how it is measured.

    In this section, the course should cover the costs of inflation, the main price indices, such as the consumer price index (CPI) and the gross domestic product deflator. Students should learn how these indices are constructed and used to convert nominal values into real values, as well as to convert dollar values in the past to dollar values in the present. It is also important to highlight the differences between the two price indices as a measure of in.ation, as well as the problems associated with each measure.

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