Factors Used to Measure the Economy - Essay Example

Factors Used to Measure the Economy The economic system of an entire country is often vast as well as complex. Despite its complexities, economists, political scientists, social workers as well as individuals at large are often concerned with a few factors which are used to measure the performance of a given economy. Of course there may be a bit of debate surrounding which factor or which measure is the best for measuring the performance of an economic system (BEA, 2007). However, by and large figures such as the GDP, employment levels, inflation levels and the interest rates can be used to measure the performance of an economy.

The GDP of a country is taken to be the value of all goods and services that are provided within the economic system. It can also be the total value which is added to a product at every stage of production whether the final product is a good or a service. It is measured on a period to period basis therefore it allows for easy comparisons to show how the economy has grown or shrunk over time (BEA. 2007). For example, if the GDP of the United States grows from 10 trillion dollars to 11 trillion dollars in real terms over a one year period then it can be said that the American economy itself has grown by a trillion dollars in one year.

Employment levels in a country show what percentages of people are gainfully employed from the population set which is eligible for employment. Essentially, the employment figures refer to the condition and the range of joblessness in an economic system. A high level of employment often shows that an economy is undergoing a booming period where the demand for labor is high and individual wages as well as living standards could be on the rise. On the other hand, a situation of low employment could mean decreasing returns for labor which in turn could lower the living standards for a lot of people.

This statistic is often mentioned in news reports to give a rough estimate about the state of the economy even though it is often raft with small errors (BEA, 2007). The last two measures, i.e. inflation level and interest rates are often connected with each other since both deal with the level of money which is being supplied to the economy. They are also popular in the media since they connect deeply with people’s abilities to borrow money (interest rates) and their money purchasing more goods and services (inflation).

Interest rates refer to the cost of borrowing money which can be controlled by the government to slow down the economy if it appears to be overhearing or to increase economic output if the economy seems to be slowing down. Increasing inflation often means that prices are rising and unless wages keep up with rising prices, the standard of life for individuals is bound to go down. This is a measure of inflation with reference to the (CPI) Consumer Price Index which is most relevant for the public but econometricians may use other measures such as the GDP deflator to come up with other values of inflation (BEA, 2007).

Works Cited Bureau of Economic Analysis. (BEA). 2007, ‘Glossary’ [Online] Available at: http://www.bea.gov/glossary/glossary.cfm