Naked Economic Chapter 9 Summary

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All economies have periods of successes and defeats. These cycles of growth and recession are referred to as the business cycle. Understanding why businesses cycles occur requires a better grasp of how we measure a modern economy. Many factors are involved in measuring a modern economy.

The first of these factors is the gross domestic product, or GDP, of an economy. The GDP is the value of all goods and services produced in an economy, the market price of goods we manufacture and all the services we provide. As an economy grows, it produces more goods and services.

A nation's collective well being can be related to its GDP. What we can consume is contained by what we can produce, so what a country consumes is going to be nearly identical to what it produces. Gross domestic product is adjusted for inflation, while nominal figures and wages have not. The GDP per capita is a nation's gross domestic product divided by its population. Countries must match production with the rate of the growing population.

The United States is very wealthy compared to other countries and when observing our own wealth in the past. This is because we are more productive. We work harder and longer. Making money takes time. While things are literally more expensive then they were in the past due to inflation, they are not in regards to the "work time." The cost of things in relation to the amount of money we earn per hour, week, month, or year has significantly decreased. We are experiencing a rapidly rising standard of living. Robert Lucas, Jr. referred to the wealth and economic well being of the United States as a "phenomenon of sustained growth in living standards." While gross domestic product helps to measure the wealth of our economy, there are certain factories that are not included. Activities that are not paid for, such as work done in the home, and environmental degradation, such as cutting down trees to make paper, are examples of these sorts of unpaid...
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