Financial Indicators of an Economy

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The consumer price index is a statistical measure that evaluates changes in the weighted price of goods and services in the basket consumed by consumer. To measure CPI, the government chose a base year arbitrarily and set the prices of a predetermined basket of that year equal to 100 to compare it with the prices of the following year to determine the inflation rate. The bureau of labor statistics surveys prices of goods and services of a basket around the country and publish the results every month and the average change of whole year, the annual percentage change in CPI will determine inflation or deflation per annum. A price of the index will depend upon the set of goods that are considered as representatives of a market basket. The choice of products varies from country to country and the consumption habits of the population. In a basket, prices of some goods might record a drop whereas others may rise. Thus, the weighted average price of each good and services comprising the basket will be taken.

Inflation refers to the percentage increase in average price of a basket i.e. consumer price index over a period of time, generally a year. Inflation actually depicts a reduction in the purchasing power per unit of money. The inflation rate is determined by the consumer price index. CPI shows the change in average price over a period of time, if the change records the increase in prices, it reflects inflation, contrarily it is deflation. 

Gross domestic product is an economic measure that aggregates monetary value of goods and services manufactured within the geographical boundaries of a country in a specific time period. The ratio of GDP to the total population of a particular region is called per capita GDP and Mean standard of living. It is considered as the statistical indicator of national development and progress of a particular economy. There are three methods to measure the gross domestic product of an economy, such as Income method, value-added method, and expenditure method. GDP calculation is of two types, which are as follows:

  • Nominal GDP evaluates the current market price, reflecting all the changes in the market price that have recorded during a particular time period, generally a year. The changes in nominal GDP is recorded due to inflation or deflation in an economy.
  • Real GDP: Real GDP is inflation adjusted measure, which shows the comparison of goods and services produced in the current year with the production in the base year. Prices of current year refer to constant price and prices of the current year are referred to inflation-corrected GDP, thus Real GDP reflects the accurate economic growth of an economy.

Employment is a formal contract between two parties, build a relationship of employer and employee. the employer is the party, which gets the work done from others and paid the employee against the work done. Whereas, the employee is a party, who performs the work and get paid from the employer. The payment can be in the form of hourly wages, piece work or annual salary, which depends upon the agreement undertaken by employer and employee.

 

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