Economists predict economic performance by studying past and current performance of the economy. They use measures to track such things as: What's the total economic output of the country? How much money did businesses and individuals make last year, and are they making more this year? Are prices for things going up or down? How many people are working and how many are looking for work?

Let’s take a look at some of the tools economists use to measure these statistics. You may have heard of some of these measures in the news, but didn't know what they were, or how they were used.

Economists use the following indicators to measure the economic performance of countries:

• Gross Domestic Product (GDP) - How much did the country produce last year?
• Inflation - How fast are prices going up?
• Unemployment - How many new jobs are there, and how many people are looking for work?

All of these measurements are reflected in the business cycle, which is the movement, whether upward or downward, of economic activity in a nation. Let's look at each of the measurements of economic activity in-depth first. Once you understand how economists use these tools, we'll look at how they all fit together in the business cycle. Once you're done with these presentations and practices, you'll understand how all these numbers have a concrete impact on your life.

	Gross Domestic Product How does a country calculate its Gross Domestic Product? Watch this presentation to learn about all of the items that compose the GDP and why this indicator is so important to a country. View a printable version of this interactivity
	Inflation Do you ever feel like your money isn't worth as much today as it was last year? That might be because of inflation. Watch this presentation to find out about inflation and to learn how economists measure it to determine the worth of everyday items over time. View a printable version of this interactivity.
Deflation When the inflation rate dips below zero percent, deflation occurs. Click the player button to learn more facts about deflation. View a printable version of this interactivity.
	Unemployment Rate The unemployment rate is used by economists and the government to determine the health of the national economy. Unemployment rates vary for people of different races, ages, and gender. This is a result of differences in education, training, skills, and experience. In this interactivity you will learn how to calculate the unemployment rate and what that statistic might mean to you. View a printable version of this interactivity.

The Business Cycle

As you already learned, consumers decide whether or not to buy something based on how secure they feel about the economy. For example, if they constantly hear on the news that the nation is in a recession and people are losing jobs, they feel less secure about their finances due to a weak economy, and thus are less likely to make a lot of purchases. This in turn will make the economy even weaker. On the other hand, if consumers are confident the economy is doing well, they will buy more, and make the economy grow.

Take a moment to read the following scenarios. Which situation would make you want to spend more money?

Scenario A	Scenario B
You work in an electronics store and your supervisor congratulates you on having a twenty percent increase in your sales since last year. As a result you get more hours, and you notice the store is having difficulty keeping its shelves stocked.	You work in a retail store, and your supervisor meets with you to explain how sales are down thirty percent since last year. As a result every employee's hours will be cut back.

In Scenario A, consumer confidence is spreading. You are therefore more likely to have high economic confidence and buy more. The more consumers buy, the more economic growth will occur - this contributes to consumers buying even more products. In Scenario B, consumer confidence is decreasing. You are therefore less likely to have economic confidence and buy less. Companies will be forced to lay off employees, and this lack of confidence will spread as fewer and fewer people buy goods.

Phases of the Business Cycle

As demonstrated by the above scenarios, consumer confidence can cause changes in the economy. Neither positive nor negative changes will go on forever. Rather, it's a cycle commonly referred to as the business cycle. In this interactivity, you will examine a hypothetical business cycle. As you explore the phases, think about how the business cycle is like a roller coaster. Click the player button to begin.

View a printable version of this interactivity.

 

More Activities

Do you think you could be in charge of the economy? You would need to implement different policies in an attempt to influence the rate of inflation, unemployment, and interest rates. See if you could perform Ben Bernanke’s job as Chairman of the Federal Reserve Board. Check out the Fed Chairman Game at the Federal Reserve website.