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Economic Indicators

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Angelo Vozza

on 11 November 2013

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Transcript of Economic Indicators

Economic Indicators
Inflation Rate
The inflation rate is the percent increase in prices, or average level of prices. In other words, how much more a given good costs one year to another.
GDP is the total market value of all final goods produced in a country
The Consumer Price Index (CPI) looks at the changes of price for goods and services provided in a market
By Alex Endresen and Angelo Vozza
GDP Per Capita is useful as it takes country size into consideration (larger countries have higher GDPs)
This measurement, however, only evaluates spending habits and doesn't take account of quality of life or purchasing power.
US GDP Over Time
Nominal GDP
Per Capita
1933 (Great Depression)
1984 (Reaganomics)
$57,200 Million
$4,040,700 Million
$16,244,600 Million
Samuel H. Williamson, "What Was the U.S. GDP Then?" MeasuringWorth, August 2013
Real v. Nominal GDP
While nominal GDP looks at production in the vacuum of an individual economic environment, real GDP takes into account inflation and price difference to make a more standard measurement
Real GDP Over Time
Real GDP
Per Capita
1933 (Great Depression)
1984 (Reaganomics)
$777,600 Million
$7,277,200 Million
$15,470,700 Million
Samuel H. Williamson, "What Was the U.S. GDP Then?" MeasuringWorth, August 2013
CPI is a primary indicator of Inflation in an economy
CPI is also used to adjust values, such as wages, to reflect a standard value
US Consumer Price Index
CPI opened in 2013 at 230.280 and has since increased to 234.149. CPI was not measured by the US during 1933 or 1984
The average amount of money American makes each year indicates the health of the economy as consumer spending in the US is what builds the US economy, as shown by the trade deficit.

It, however, is not the best indicator of the economy
Average Annual Income, when not adjusted, fails to account for changes in purchasing power and also doesn't evaluate distribution of wealth
US Average Annual Income
Average Annual Income
Low Fifth
Middle Fifth
Top 5%
No Data for 1933
Real Wage
Real wage is an important indicator in the comparison of income as it takes into account CPI and inflation between countries and time periods
US Real Wage
Sept. 2013
Average Hourly: $10.30
Average Weekly: $355.26
Circular Flow of Income

The Circular Flow Model shows the movement of money between individuals, businesses, and government
The Unemployment Rate is the number of people looking for a job, divided by the number who have work.
Evaluating this gives information about how active the economy is.
The only problem with the unemployment rate is that is does not take into account the size of the labor force. In 2012, the labor force was 155 million, 4th in the world. In other words, it doesn't count people who aren't looking for work.
The USA's Unemployment Rate was 9% in 2011 and 8.1% in 2012.
In comparison, the Unemployment Rate during the Great Depression was as high as 23.6% in 1932.
While during the Reagan administration, unemployment started off was as high as 9.1% in 1982, but he lowered it to 5.2% by the time he left office in 1988.
Unemployment is a reliable tool the measure the health of our economy, but it cannot compare the health of economies because the definition of unemployment changes from country to country.
For instance, the Unemployment rate is Cambodia is 0%, but it is agreed that their economy is far worse then ours
Depending of the speed of the flow between households and business, the economy either grows or shrinks.
Faster Flow = More Consumer Spending
Slower Flow = More Consumer Saving
The National Debt
GINI Index
The National Debt is a measure of the amount of debt a country owes
National Debt by the #'s
During the Great Depression, the Federal Debt went from 16.9 billion in 1929 to 37.1 billion in 1938, a rise of over 200%!
The current National Debt is a little over 17 trillion.
The Gini Index quantifies income inequality in an economy, ranging from 0 (most equal) to 1 (least equal).
Gini Index is important in evaluating the health of the economy because it gives a picture to who has access to funds (i.e. Does the middle class have the ability to purchase?).
During the Reagan Administration, the National Debt went from 9.07 billion, to 2.35 trillion
But the National Debt alone is not an economic indicator because every country had debt, the GDP to Debt ratio is a much better economic indicator.
GDP to Debt Ratio
One of the best indicators of economic health is GDP to Debt ratio
It is calculated by dividing the Debt by GDP, in general, the lower the number, the better the economy.
During the Great Depression, the GDP to Debt Ratio rose from 16% in 1929 to 43% in 1938. Yikes!
During Reagan's second term, the GDP to
Debt ratio went from 42% to 49%.
During the Obama Administration, the GDP to Debt ratio has jumped from 68% in 2008 to 100% in 2013. Yikes!
Gini Coefficient
Gini Coefficient
No US data for 1933
The inflation rate in the USA has gone down from 3.1% in 2011 to 2.1% in 2012. It ranks 42nd in the world.
When Reagan took office in 1980, Inflation was 13.5%, by 1986, it was only 1.6%.
And in 1931, the Inflation Rate was -5.1%
The Business Cycle
The business cycle is the ebb and flow of the economy. It is comprised of five phases.
Peak: Where the Real GDP is at a temporary high
Contraction (Recession): When the Real GDP decreases for two quarters in a row. This is bad for the economy.
Trough: The bottom point of the economy, where the Real GDP is at the lowest.
Recovery: When the Real GDP begins to increase and approach a new peak.
Growth Trend (Expansion): It is how much the Real GDP has grown/ decreased. It is determined by the analysis of peaks and troughs
Inflation is a good economic indicator because it shows how the money supply is doing.
Trade Deficit
Trade Deficit, also known as Net Exports or NX, is the total exports of a country minus the total imports.
NX helps to characterize the nature of a country's economy. For example, the US has a high trade deficit, low imports but high exports, which is representative of it consumer economy.
NX doesn't always indicate the health of the economy, however it helps provide background to the other indicators.
Net Exports
Trade Balance
No US data for 1933
Source: World Fact Book
Source: World Fact Book
Source: World Fact Book
Source: http://www.davemanuel.com/historical-unemployment-rates-in-the-united-states.php
The business cycle is used to see where the economy is by using economic indicators, it is not an indicators by itself. We are currently in a recovery.
As a whole, the health of our economy isn't good. It is improving, but fiscal policies has stifled growth.
Unemployment has been falling, but is still too high, 7.2%. When we compare the current economic model with Reaganomics, we see that unemployment could be much lower had the government practiced fiscal responsibility. In addition, the labor force is still lower than 66%.
In addition, the National Debt has been rising at an alarming rate. The Obama Administration has acquired more debt than any other administration and the GDP to debt ratio had risen to 100%.
The government has been spending money, which should help economic growth, right? The problem is it has been spend on bailouts and Obamacare. These policies increases spending without raising GDP. Therefore, these policies have hurt the economic recovery and it will take a while for the economy to fully recover.
In short, our economy is still bad, but slowly improving. And growth/recovery has been hindered by the current administration.
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