Intro To Business

1. Intro To Business Chapter 3 Economic Activity in a Changing World

2. U.S. Economic History The Changing U.S. Economy: 1600’s- the colonists bartered, or traded goods and services- our service-based economy was created. 1700’s- farming was a common way of life, this formed an agricultural–based economy. 1850’s- the Industrial Revolution enabled the advent of big machines for producing goods, this started the industry-based economy. 1900’s- saw the rapid movement of information, with the invention of the computer, this started the information-based economy.

3. U.S. Economic History • Measuring Economic Activity • Economic Indicators - Figures used to measure economic performance • They measure how much a country is producing, whether the economy is growing, and how a country compares to other countries • Gross Domestic Product (GDP) – The value of goods and services produced in a country in a given year. • The U.S. has a very high GDP compared to other countries. • http://en.wikipedia.org/wiki/File:2010_Nominal_GDP.jpg 3.1

4. U.S. Economic History • Standard of Living – The level of material comfort as measured by the goods and services that are available. • The more goods and services produced per person, the higher the standard of living. ( US is high) • Unemployment Rate – Measures the number of people who are able to work but cannot find work during a given period. • Changes in the unemployment rate show whether an economy is picking up or slowing down. • U.S. - http://www.bls.gov • Ohio - http://www.bls.gov/web/laus/laumstrk.htm 3.1

5. U.S. Economic History • Rate of Inflation – • Inflation – A general increase in the price of goods and services. Demand vs. Supply • One’s buying power decreases because it costs more to buy goods and services. • CPI (Consumer Price Index) – report monthly, it measures the price changes in approximately 400 goods and services • Deflation – General decrease in the price of goods and services. Demand vs. Supply • When an economy produces more goods than people want 3.1

6. U.S. Economic History • National Debt – The total amount of money a government owes. (Around 17 Trillion) http://www.usdebtclock.org • Budget Deficit – The difference in the amount a government spends on programs and the taxes it collects. • Budget Surplus – When a government’s revenue exceeds its expenditures.

7. Influences on Personal Financial Planning Calculating Interest: Principal- the original amount of money on deposit. Future Value- is the amount your original deposit will be worth in the future based on earning a specific interest rate over a specific period of time. Present Value- the amount need to deposit now to receive a future specified amount. Annuity- a series of equal regular deposits into their savings. Single Deposit- One time deposit.

8. Questions • When did the service-based economy begin? • What do economic indicators measure? • What is the difference between a budget surplus and a budget deficit?

9. The Business Cycle • Guiding the Economy • Whenever tax money is spent it guides the economy • These expenditures are often planned to guide the economy • The Federal Reserve • The government agency that guides the economy • Regulate the amount of money in circulation • control interest rates • controlling the amount of money loaned. 3.2

10. The Business Cycle • The rise and fall of economic activity over time • Many reasons for this: • Wars, foreign competition, changes in technology and changes in consumer wants. Four Stages of the Business Cycle Prosperity Prosperity Recovery Recession Depression Depression

11. The Business Cycle 1. Prosperity – The Peak of Economic Activity • Unemployment is low, production of goods and services is high, new businesses open • Wages are higher • Greater Demands for goods to be produced 2. Recession – Economic Activity Slows Down (for two consecutive quarters) • Businesses produce less, so they need fewer workers • Unemployment rate increases, people have less money to spend • General drop in GDP

12. The Business Cycle 3. Depression – A Deep Recession • High unemployment rate • Low production of goods and services • Affects the entire economy and lasts for several years • October 29, 1929 - Black Tuesday (Stock Market Crash) • WWII (1939) • FDIC - $250,000 per account 4. Recovery – Rise in Business Activity • Production starts to increase • People start going back to work • People have more money to buy goods and services • Leads back to prosperity as new businesses open and existing businesses increase productivity.

13. Questions • What is the stage that follows a recession or a depression? • What is the difference between a recession and a depression? • Why may innovation play an important role in the recovery stage of the business cycle?