Economic Indicators for Informed Citizens

This lesson introduces students to three basic economic indicators: real GDP, the inflation rate, and the unemployment rate. The students work in small groups to develop an economic forecast, using the three basic economic indicators. They participate in a simulation activity involving a fictional economic forecasting firm. The firm has taken on a client who wishes to start a new business and wants to know whether this is a good idea, given the current economic climate. To advise the client, the students produce a report based on research they conduct about the state of the economy, according to the three economic indicators.

On any given day, citizens reading a newspaper or watching a newscast are likely to read or hear reports about the state of the U.S. economy. Often these reports discuss economic indicators. An economic indicator is a statistic that indicates something about the current performance of the U.S. economy. The three most commonly reported indicators are real gross domestic product (GDP), the inflation rate, and the unemployment rate.

Economic indicators serve people in several ways. Investors use economic indicators to make decisions about how to invest. Consumers use economic indicators to make decisions about buying a home. Business owners use economic indicators to make decisions about how many workers to employ. And citizens may use economic indicators to make decisions about which representatives to vote for and which public policies to support. These and other uses of economic indicators will be important to students as they move toward adult participation in the economy.

This lesson was originally published in CEE’s Focus: Understanding Economics in Civics and Government.  Visit https://store.councilforeconed.org/ for more information on this publication and how to purchase it.

1. Define real gross domestic product, inflation, and unemployment rate.
2. Locate current data for real gross domestic product, inflation, and the unemployment rate.
3. Examine 12-month trend data for gross domestic product, inflation, and the unemployment rate.
4. Use economic data to produce a report that describes the current state of economic activity and provides an economic forecast to a fictional client.

• A transparency of Visuals 18.1 and 18.2
• A copy for each student of Activity 18.1 and 18.2
• Online sources: See Procedure 4 below

1. Tell the students that this lesson will focus on some key indicators that are used to measure the health of the nation’s economic system. Ask the students if they are familiar with any TV shows set in emergency rooms. Prompt them to think of the important medical information (the vital signs) that emergency room doctors use to determine the health of the patient (e.g., pulse, blood pressure, respiration, etc.). Explain that, much like an emergency room patient, the United States economy has important “vital signs” as well. These vital signs can be thought of as economic indicators.
2. To move toward an introduction of the lesson’s main concepts, ask the students whether they have ever heard or read a news story about the “health” of the U.S. economy. If anybody has, ask whether the news item mentioned inflation, unemployment, or gross domestic product. (Discuss responses briefly.) Explain that these concepts refer to three important economic indicators—vital signs that can tell us a great deal about the “health” of the economy. Display and briefly discuss Visual 18.1, explaining that today the students will be learning about all three of these indicators.
3. Introduce the simulation activity: in order to learn about the economic indicators, the students will play the role of a partner in a fictional economic forecasting firm. Distribute Activity 18.1.
4. Students will need access to current economic data. The following are sources for current economic data:
   • White House Economics Briefing Room: https://www.whitehouse.gov/briefing-room
   • Bureau of Labor Statistics: https://www.bls.gov/eag/eag.us.htm
   • Bureau of Economic Analysis: https://www.bea.gov/
   • Economic data from the Federal Reserve Bank of St. Louis: https://research.stlouisfed.org/fred2/
5. This lesson uses a form of cooperative group learning. Explain to the students that they will be assigned to two groups. First, they will be assigned to a Home Group that represents their economic forecasting firm, Economic Forecasters, Inc. (or EFI). Each EFI group will have at least three members. The second group is an Expert Group. Within this group the students will learn about one economic indicator, and complete the appropriate Study Guide. Then they will return to their EFI groups to report what they have learned. Each student will have a data retrieval chart (see Table 18.1) in which to enter relevant information. Sample responses to Study Guides:

Study Guide Answers: Unemployment Rate

1. All people without a job are considered unemployed. (circle one) TRUE / FALSE
2. The unemployment rate measures _______.
   (The percentage of the U.S. labor force that is unemployed.)
3. The unemployment rate is calculated by _______.
   (It is calculated by dividing the number of unemployed individuals [U] by the number of people in the labor force, which is the sum of the number of people unemployed [U] and the number of people employed [E]. The result is then multiplied by 100 to turn the unemployment rate into a percentage; unemployment rate = [U/U+E] x 100.)
4. Calculate the unemployment rate if: U = 7,000,000 E = 145,000,000
   _____ (4.8%)
5. Costs of an increasing unemployment rate:
   • Workers do not have the income to support themselves.
   • GDP is lower.
   • Average standards of living are lower as a result of unemployment.
6. Three types of unemployment:
   • Frictional unemployment.
   • Structural unemployment.
   • Cyclical unemployment.
7. Current unemployment rate: _____.
   (Answer will depend on current information; see https://www.bls.gov/ .)
8. Unemployment rate trend over the last year: _____.
   (Answer will depend on current information; see https://www.bls.gov/ .)

Study Guide Answers: Inflation Rate

1. The Consumer Price Index (CPI) is _____.
   (A measure of the average level of prices paid for goods and services by households.)
2. The Consumer Price Index measures _____.
   (The cost of purchasing a fixed market basket of goods and services.)
3. The inflation rate is calculated by _____.
   (Determining the percentage change in the CPI from one month to the next or from one year to another.)
4. Calculate the inflation rate if:
   CPI (September 2007) = 208.5
   CPI (September 2008) = 218.8
   _____ (4.9%)
5. Two causes of inflation:
   1. Demand-pull.
   2. Cost-push.
6. Costs when the inflation rate increases faster than expected:
   1. People on fixed incomes are worse off.
   2. Interest rates increase.
   3. Business investment decreases.
   4. Purchasing power decreases.
7. Current (12-month) inflation rate: _____.
   (Answer will depend on current information; see https://www.bls.gov/ .)
8. Inflation rate trend over the last three years: _____.
   (Answer will depend on current and historical information; see https://www.bls.gov/ .)

Study Guide Answers:
Real Gross Domestic Product (GDP)

1. The gross domestic product (GDP) is _____.
   (The output of final goods and services produced in the U.S. in one year.)
2. Real GDP is _____.
   (Output adjusted for inflation.)
3. The components of GDP are:
   1. _____ consumer spending.
   2. _____ investment spending.
   3. _____ government purchases of goods and services.
   4. _____ net exports (exports – imports).

   Complete the formula: GDP = (C + I + G + Xn [net exports])

4. GDP is an important measure of the nation’s economic health because _____.
   (Output is crucial to employment, earnings, income, spending, and other key measures of overall economic well-being.)
5. Increasing GDP indicates _____.
   (Greater output, higher productivity, and/or more employment, higher standard of living, etc.)
6. Decreasing GDP indicates _____.
   (Less output, lower productivity, and/or less employment, lower standard of living, etc.)
7. Current level and growth rate of real GDP: _____.
   (Answer will depend on current information; see https://www.bea.gov/ .)
8. Trend in the growth of real GDP over the last three years: _____.
   (Answer will depend on current and historical information; see https://www.bea.gov/ .)

GROUP ACTIVITY CONTINUED 

Assign the students to their EFI groups. (Note: It is possible that an EFI group may have more than three members if the number of students in the class is not divisible by three). At the same time, assign the students to one of the three Expert Groups (Inflation, Unemployment, real GDP). Note that each EFI group is required to have one expert in each of the three categories of unemployment, inflation, and real GDP. This means that students must be evenly distributed across expert groups. Once these groups have formed, display Visual 18.2. Announce that the groups will now break up into their assigned expert groups.

Allow the students 15 minutes to read the description of their indicator, discuss it, and complete the row in Table 18.1 that pertains to their indicator. Note that the students will need access to the Internet in order to complete the section asking for current information and recent trends of their indicator. For sample responses, see Table 18.1.

Once the students have completed their respective sections of Table 18.1, have them return to their EFI groups; in the EFI groups they should share what they have learned with other members of the group. Each member should then complete the remaining sections of Table 18.1 based on the reports of the other two members.

Once students complete Table 18.1, each EFI group will prepare a report written to the fictional client (“Ms. J. Q. Public”). Each group should use the report template provided at the end of Activity 18.2.

Once the reports have been completed, ask the students to share their recommendations. How many recommended opening the new business? Why?
(Answers will vary, based on the current performance of the economy.)

Quickly review the definitions of each of the economic indicators. Ask the students what the trend was for each indicator. Ask them to explain their recommendations based on these trends.
(E.g., if real GDP has fallen for two quarters, EFI might recommend that Ms. Public be cautious about starting a new business.)

No Extension Activity.

Multiple-Choice Questions

1. Which of the following statements is not true?
   1. Unemployment can lead to financial and family problems.
   2. Unemployment leads to higher standards of living.
   3. The labor force includes those who are working or actively looking for work.
   4. Unemployment is associated with less output in the overall economy.
2. If the Consumer Price Index (CPI) for one year was 150 and for the next year it was 157.5, the inflation rate from one year to the next is
   1. 5.0%.
   2. 7.5%.
   3. 57.5%.
   4. 157.5%.
3. Gross domestic product is calculated by adding together
   1. consumer spending, government spending, and all imports.
   2. consumer spending, government spending, and all investments.
   3. consumer spending, investment spending, and net exports.
   4. consumer spending, investment spending, government purchases of goods and services, and net exports.

Constructed-Response Question

Read the following fictional headline:
U.S. output increases for the 10th consecutive quarter
Define the economic indicator used in the headline. Then explain the headline: what does it mean, literally, and what does it suggest about the U.S. economy?
(This headline refers to real GDP. The headline means that the U.S. economy has been experiencing an economic expansion for the past 21/2 years. Associated with this expansion, there probably has been an improvement in average living standards, increased spending in various sectors of the economy, and, perhaps, a reduction in the unemployment rate.)