What tools are used to measure economic activity?

Economic activity is primarily measured using tools such as Gross Domestic Product (GDP), unemployment rates, and inflation rates.

Gross Domestic Product (GDP) is one of the most commonly used tools to measure economic activity. It represents the total value of all goods and services produced over a specific time period within a country's borders. GDP is used to compare the economic performance of different countries and to measure economic growth. It is calculated by adding up consumption, investment, government spending, and net exports. However, GDP has its limitations. For instance, it does not account for the distribution of income within a country or the informal economy.

Unemployment rates are another key indicator of economic activity. They measure the percentage of the labour force that is jobless and actively seeking employment. High unemployment rates can indicate a struggling economy, while low rates may suggest a thriving one. However, it's important to consider the types of unemployment present (cyclical, structural, frictional, or seasonal) as they can provide more nuanced insights into the state of the economy.

Inflation rates are also used to measure economic activity. Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Central banks attempt to limit inflation — and avoid deflation — to keep the economy running smoothly. Economists use various indices to measure inflation, such as the Consumer Price Index (CPI) or the Wholesale Price Index (WPI).

Other tools include interest rates, which can indicate the cost of borrowing and the return on savings, and the balance of trade, which shows the difference between a country's imports and exports. Stock market performance can also be a barometer of economic activity, reflecting investor confidence in the economy.

In summary, while GDP, unemployment rates, and inflation rates are the primary tools used to measure economic activity, a range of other indicators can provide a more comprehensive picture of a country's economic health.