Measuring the Health of the Economy

Read this section to understand more about economic growth. Looking at GDP alone does not give much of an indication of the health of an economy. It is the change in GDP that is relevant. If GDP goes up, the economy is growing. This positive movement is what we want as we leave behind the most recent recession. Complete the exercises at the end of the section.

EXERCISES

  1. (AACSB) Analysis

    Congratulations! You entered a sweepstakes and won a fantastic prize: a trip around the world. There's only one catch: you have to study the economy of each country (from the list below) that you visit, and identify the current phase of its business cycle. Be sure to explain your responses.

    • Country 1. While the landscape is beautiful and the weather is superb, a lot of people seem unhappy. Business is slow, and production has dropped steadily for the past six months. Revenues are down, companies are laying off workers, and there's less money around to spend.
    • Country 2. Here, people are happily busy. Almost everyone has a job and makes a good income. They spend freely, and businesses respond by offering a steady outflow of new products.
    • Country 3. Citizens of this country report that, for a while, life had been tough; lots of people were jobless, and money was tight. But things are getting much better. Workers are being called back to their jobs, production is improving, and people are spending again.
    • Country 4. This place makes you so depressed that you can't wait to get back home. People seem defeated, mostly because many have been without jobs for a long time. Lots of businesses have closed down, and those that have managed to stay open are operating at reduced capacity.

  2. What are the three main economic goals of most economies, including the economy of the United States? What economic measures do we examine to determine whether or how well these goals are being met?