​Why must the government monitor the economy? The economy is always going through the business cycle

Expansion refers to when the economy is growing. Unemployment is down and inflation is increasing as more people are working and demanding good.

Contraction refers to when the economy is shrinking. Unemployment is going up and inflation is too high. If the economy is shrinking, or slowing down for a long period it is a recession.

Economic indicators

How does the government know how healthy the economy is? They use economic indicators. 3 basic indicators are GDP, CPI, and the unemployment rate.

Consumer Price Index measures inflation. How much to certain goods cost now compared to a year ago?

​CPI

Gross domestic product is how much an economy is producing in a given time period.


You want the economy to be growing steadily.

GDP

​Unemployment rate

How many people who want to work can't find a job.

What does a healthy economy look like?

GDP: A country's economy is growing every year.



CPI: Inflation is slow and gradual. Worker's pay is increasing to match it.



Unemployment rate: 3-5% of the people cannot find jobs.

The Federal Reserve, an independent agency, uses monetary policy to stop inflation and help unemployment.

​Monetary Policy

Congress and the President use taxing and spending to fix problems.

Fiscal Policy

What does the government do if the economy is unhealthy?