Gross Domestic Product gives us a snapshot of a country's economic output, but it doesn't tell the whole story. To truly understand the health of an economy, we need to look at how its people are faring. Two of the most important questions are: do people have jobs, and can they afford their daily lives? Answering these requires us to look at other key indicators: unemployment and inflation.

The unemployment rate is one of the most closely watched economic statistics. It measures the percentage of the labor force that is jobless but actively looking for work.

It's crucial to understand who counts as part of the "labor force." The labor force includes both employed people and unemployed people. To be considered unemployed, a person must not have a job, have actively looked for work in the prior four weeks, and be currently available for work.

This means that many people without jobs are not counted as unemployed. This group includes full-time students, retirees, and "discouraged workers"—those who could work but have given up searching for a job. They are considered outside the labor force.

The unemployment rate is calculated with a straightforward formula.

The second major indicator is inflation, which measures how quickly the overall price level of goods and services is rising, and subsequently, how much the purchasing power of a currency is falling. When inflation is high, your money doesn't stretch as far as it used to.

To measure inflation, economists use the Consumer Price Index, or CPI. The CPI tracks the overall change in prices paid by typical consumers for a specific collection of goods and services, often called a "market basket."

This basket includes hundreds of items, from food and gasoline to haircuts and medical care, weighted to reflect their importance in an average household's budget. By comparing the total cost of this basket from one period to the next, we can calculate the inflation rate.

While incredibly useful, these indicators have limitations. The unemployment rate, for example, doesn't capture the struggles of underemployed workers—people working part-time who want full-time jobs—or discouraged workers who have left the labor force entirely.

Similarly, the CPI represents the spending habits of an 'average' consumer, which might not accurately reflect your personal experience. If you don't own a car, a sharp rise in gasoline prices won't affect your budget as much as the CPI suggests. If you have unique medical expenses, your personal inflation rate might be much higher.

These indicators provide a vital, high-level view of an economy's performance. However, they are broad averages that can mask important details about individual well-being and regional differences.

Time to test your knowledge.