The happenings "inside" the Wisconsin State Treasury and across the street at the State Capitol

The Economy and You #2 – GDP, Inflation & Unemployment

Economists use all kinds of data and statistics to explain the performance of our economy.  Of all of those, there are three statistics that are especially important: real gross domestic product (GDP); the inflation rate; and the unemployment rate.

Real GDP or gross domestic product measures the aggregate income or output of the entire economy.  GDP helps to measure the general well-being of an economy and its citizens.  When the GDP increases, the economy is experiencing an expansion, if contracting, it is considered a recession.  For example, the real GDP per person in theUnited Statesis almost eight times higher than in 1900.  This is the measure that lets us know if we are better off than our parents and grandparents.

The inflation rate measures how fast prices are rising. Inflation has varied significantly over time with periods of falling prices, called deflation, that are almost as common as periods of rising prices, or inflation.

The unemployment rate measures how many people in the labor force are looking for work.  There is always some unemployment in the economy.  The unemployment rate is related to the economy’s GDP or aggregate output because labor is a major component in our economy’s production of goods and services.  From a historical perspective, the unemployment rate has also varied from year to year with no long term trend.

As the series continues, I will take a closer look at each of these statistics and how they are measured.  Policy makers use these data as guideposts as to the health of our economy and reasons for specific monetary and fiscal policy decisions.  It is important to know why.


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