Overview: Measuring the Economy

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If the drastic aggregation of macroeconomics seems rather strange, think about what a discussion of unemployment or inflation means. When we talk about the country's unemployment rate, we are lumping together all people who work, which means we are talking about an aggregated labor market. When we talk about inflation, we are talking about what happens to prices overall, or the price level, which only makes sense if we are making reference to an aggregated market for goods and services. We also refer to aggregated markets when we talk about what is happening to the interest rate, or to wages, or to output.

These readings examine how the government in the United States measures the three most commonly-used concepts based on aggregated markets: the unemployment rate, the rate of inflation, and Gross Domestic Product. They explain the purpose of each measurement, how it is computed, and what its main weaknesses are.

After you complete this unit, you should be able to:

  • Outline how the U.S. unemployment rate is computed.
  • If given a table goods and weights with prices at two or more time periods, compute a price index.
  • Describe what is meant by the term "seasonally adjusted."
  • Distinguish between price level and price structure; between real and nominal measurements.
  • List some of the problems in the way unemployment, inflation, and total production are measured in the U.S.
  • If given current-dollar GDP and the price index, compute real GDP.
  • Explain what the leading indicators are.
Copyright Robert Schenk